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Cocoa Prices Resilient


Cocoa prices have been resilient this week in the face of a risk off mood across many commodity markets, as tight supply remains a front-and-center issue. This season’s West African mid-crop output has been diminished by the spread of diseases due to heavy rainfall and by reduced fertilizer and pesticide usage due to a lack of supply and high prices. El Nino is expected to bring drier than normal conditions to many key growing areas, which could hurt upcoming production and lead to the third annual global supply deficit in a row. European and US equity markets, the Euro and British Pound all had heavy losses on Wednesday, which weakens demand prospects for cocoa. However, several global chocolate makers have upgraded their sales outlooks, as it appears high cocoa prices have not eroded demand. The fund net long is near record levels, which leaves the market vulnerable to heavy selling if the bulls get nervous about prices being near 12-year highs.

Chocolate bar


The Brazilian cooperative Cooxupe said that their 2023 harvest had reached 66.5% complete by July 28, up from 58.8% the previous week and 62.8% last year. This is their fastest pace since 2020, when it had reached 69.7% at this point in the season. However, Brazil’s July coffee exports came in below last year’s levels, which is evidence that farmers are waiting for higher prices to market their supply. Recent positive economic data have boosted demand expectations, but disappointing sales reports from Starbucks and JDE Peet’s could spark concerns. China sales rebounded sharply. Peet’s reported modest sales growth amid price increases but said volumes were down by more than 8% in Europe. ICE exchange coffee stocks fell by 750 bags on Wednesday with no coffee going through the exchange grading process. As of July 31, ICE stocks had seen six monthly declines in a row, which could be an indicator of strong demand.


The US cotton crop, particularly Texas, is under threat from extreme heat, but December cotton is under pressure from concerns about demand. Fitch lowered the US credit rating, which sparked a selloff in equites yesterday, and this has repercussions for cotton demand. The dollar rallied to its highest level since early July, which makes US cotton exports more expensive on the world market. Crude oil also sold off sharply, and this undermined cotton prices as well because it can lower the price for man-made fibers. The US crop conditions report showed US crop good/excellent ratings below average, and the Texas ratings near record lows. This should provide underlying support to the market until the weather improves and/or we start to see official data on this year’s harvest. The next chance for a look at demand will be today’s weekly US export sales report.


Strong Brazilian production and turns lower in energy prices and the Brazilian currency could keep pressure on the sugar market. Sugar prices were unable to benefit from news yesterday that the India Sugar Mills Association (ISMA) had forecast their nation’s sugar production to decline by 3.4% in 2023/24 to 31.7 million tonnes. The ISMA also projected that 4.5 million tonnes of sugar will be diverted to ethanol production, which could result in India’s 2023/24 sugar exports being limited to 2 million tonnes. But a sharp selloff in crude oil and gasoline prices put pressure on the sugar market on ideas that it would weaken ethanol demand in Brazil and India. And a decline in the Brazilian currency to its lowest level in two weeks increased the chances for Brazilian Center-South mills to produce additional sugar for export.


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