Coffee Market Eyes El Niño

COFFEE

The coffee market continues to be the least active soft/exotic commodities with prices remaining within the last two weeks’ range and remaining nearly in the center of the last six weeks’ trade. On the other hand, consolidation low support at 302.60 could be seen as a value zone with reduced Brazilian supply flows to the world market documented and the entrenched fear of El Nino production losses alive and well. Along those lines Brazilian July green coffee exports fell from 160,973 tons last year to only 153,243 tons this July. However, it is possible that the fear of lower global production is being offset by the presence of demand losses from high prices and tariffs. Signs of softening demand were seen from poor operating results from several coffee manufacturers. At least four coffee manufacturers posted weak earnings recently and Keurig might have signaled its concern for future profitability by spinning off its JDE Peet’s operation purchased back in April.

COCOA

A corrective bias remains in place today with yesterday’s sharp range down trade puncturing a moderate measure of speculative confidence in the bull camp. On the other hand, the market did aggressively reject yesterday’s spike down move, but this morning’s lower trade eradicates optimism that a value/support level was found yesterday. While we continue to see the cocoa market in a potential historic uptrend, seeing the market reverse directly in the wake of lower production estimates throughout this week (Ivory Coast, Ghana, Côte d’Azur, and Cameroon) and in the face of signs that several countries are committed to supporting farmgate prices indicates buyers are balking. Adding to the fear of falling production is news from yesterday that Cameroon cocoa production declined by 20% in the 2025/2026 season with the total output of only 247,914 metric tons which is significantly lower than the 309,518 tons produced in the 2024/2025 campaign. While seeing the Indian monsoon run 11% below normal is not directly/physically linked to the prospects of El Nino production losses in cocoa, that news gives further hype to El Nino cocoa production fears for West Africa and Brazil. With Europe the largest destination for Cameroon cocoa the late July and early August recovery in the euro could prompt bargain hunting buying from European chocolate manufacturers in the face of further technical balancing price declines.

COTTON

In retrospect, it appears the cotton market has reached a temporary overbought price level and is seeking a value zone with long liquidation and potentially from speculative/fund traders looking to profit from a dip. In fact, given the early August gains were forged on rising open interest and an increase in trading volume that confirms the uptrend but also suggests back and fill action could be more than expected. Along those lines, the most recent US export sales report showed cancellations of 55,855 bales which could be a sign that buyers are beginning to display “high price sensitivity”.  The Export Sales Report showed that for the week ending July 30, net cotton sales came in at -55,855 bales (cancelations) for the current marketing year and 242,052 for the next marketing year for a total of 186,197. Cumulative sales have reached 25.4% of the USDA forecast for the 2026/2027 marketing year versus a 5 year average of 27.2%.

SUGAR

With a very significant range-up thrust this morning, following an even larger range up move yesterday, it is clear the sugar market has bullish momentum. Enhancing the rally off last week’s low is a rapid buildup in open interest and more importantly a significant jump in trading volume. In our experience seeing significant moves confirmed by increased participation indicates a healthy trend in motion. However, bullish fundamentals are also supporting the move with Brazilian July sugar exports of 2.99 million tons down from 3.59 million tons last July. Perhaps more importantly for the bull camp is a 26.3% (year-over-year) drop in sugar output in Brazil Center South production. Furthermore, Brazil June sugar cane crushing of 69.7 million tons was down 14.5% versus from last June. Not surprisingly, Brazilian crushing mills cut their sugar crushing allocation from 49.4 last June to 41.43 tons this year. Therefore, it is not surprising that total Brazilian ethanol output increase by 2.47% to 3.7 billion liters (which includes corn-based ethanol output). In yet another important bullish development European sugar beet output is expected to fall to a 10 year low as extreme record heat damaged what was already a reduced beet crop. Even Indian production is at risk with cumulative monsoon rain running 11% below normal as of today! Analysts estimate European and UK output to fall 15 million tons to the lowest since 2015. The European commission entity MARS cut their EU beat yield by 7%, and it is likely that drop could ultimately be bigger.

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