Brazil Replace US in Cotton Market?
Cotton traders continue to express disappointment with US export sales and are concerned that Brazil will replace US cotton in the global market. China has been the largest buyer this year, but they also have a large amount that is still outstanding and therefore subject to cancellations. The weekly Crop Progress report showed 83% of the US cotton crop was harvested as of November 26, up from 77% the previous week and a 10-year average of 79%. Texas was 74% harvested and Georgia 78%. It may revisions lower in US production and/or more aggressive export sales for cotton to avoid a resumption of the downtrend. Stronger equity market action and/or strength in crude oil could lend intermittent support.
Despite its whipsaw action, March coffee continues to respect the November 20 low and is on-track for a positive monthly result. Port congestion in Brazil has reduced the flow of exports, but their large Arabica crop this season threatens to weigh on prices. Decent weather over the past few months has improved the outlook for the 2024/25 crop, but there have been concerns about the recent hot and dry conditions there. There was some relief over the weekend, but more hot and dry weather is expected this week, with a chance of rain next week. ICE exchange coffee stocks were unchanged again on Monday, but coffee waiting to be graded has increased to over 29,000 bags.
After a higher close yesterday, March sugar was under pressure overnight and was threatening to take out the November lows. Yesterdays’ UNICA sugar supply report out of Brazil showed their production continues at a record pace. However, port delays have slowed the arrival of Brazilian sugar to the world market. The UNICA report showed Brazil’s Center-South sugar production during the first half of November at 2.19 million tonnes, which was above trade expectations and their largest first-half November total on record. Brazil’s strong sugar production is expected to offset reduced crops in Thailand and India. Sugar production is expected to increase to 3.7 million tonnes in 2023 from 3.6 million in 2022. However, excess rain in Europe could delay the harvest and reduce the total output this season. Increased plantings in eastern Europe are expected to make up for the shortfall in France.
March cocoa opened at a new contract high overnight, as the market continues to be supported by tight global supply and a poor crop outlook for 2023/24. Traders at times have been concerned that the market could be reaching a limit given a large fund net long position and the possibility of reduced demand when prices are at 45-year highs, but a top has not emerged. Some traders commented overnight that the tight west African supply is already priced in and that traders will start to focus on increasing Brazilian production. However, El Nino threatens to bring excessive rainfall to major producer Ecuador, which could cause problems with their crop. Ivory Coast port arrivals total came in well below year ago levels this week, and total arrivals are well behind last year.
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