Coffee Remains on the Defensive
The market remains on the defensive and traded down to the lowest level since August 2021. The market remains technically oversold and remains vulnerable to a short covering rally. December coffee has now closed lower for 10 sessions in a row. The outlook for Brazil’s 2023/24 Arabica production has improved due to recent rainfall that has led to several waves of flowering, and that continues to be a major source of pressure on the coffee market. The Brazilian currency rebounded from early lows into positive territory, and that helped coffee prices to keep further losses in check as that can help to ease pressure on Brazilian coffee producers to market their near-term coffee supplies to foreign customers. ICE exchange coffee stocks fell by 1,160 bags on Tuesday and reached their lowest level since May of 1999. Coffee’s 32 cent decline over the past 10 sessions has left the market technically oversold. ICAFE sees Costa Rica coffee production up 11.5% from last year.
As its demand outlook received a boost, a bearish shift in cocoa’s supply outlook has kept the market in a choppy trading pattern. While it may be difficult to sustain an upside move, cocoa should still have enough bullish supply factors to hold its ground. While recent heavy rainfall has delayed the flow of early-harvested main crop cocoa beans to West African port facilities, many in the market expect it to improve the production outlook for the region’s late main-crop harvest. Expectations for inflation levels to remain high for many developed economies have weakened cocoa’s fourth quarter demand prospects. With high prices for more regularly purchased items, consumers are likely to pull back on their purchases of discretionary items such as chocolates. Mondelez said that they would spend an additional $600 million by 2030 on their company’s sustainable cocoa sourcing program to reduce child labor, deforestation and producer poverty. Global risk sentiment has improved early this week which can provide cocoa prices with underlying support, while West African production will have a tough time outperforming last season’s output total.
December cotton closed higher yesterday after holding Friday’s 17-month low. The dollar fell to its lowest level since October 5, which was supportive as it improves US export prospects. The stock market was higher, which is also supportive. There was also an announcement from a Chinese government-backed website that China will buy 6,000 tonnes of cotton for state reserves. This week’s Crop Progress report showed 45% of the US cotton crop was harvested as of Sunday, up from 37% the previous week and ahead of the 10-year average of 38%. With cotton prices down sharply from the highs and soybeans and corn only down slightly, cotton planted area could be down sharply.
While the market received some bullish supply-side developments on Tuesday, it was not enough to put any brakes on sugar’s near-term pullback. Unless there is a much stronger rebound in Brazilian ethanol demand, sugar prices are likely to slide further to the downside. A rebound in energy prices and the Brazilian currency helped to keep further losses in check as that may help to strengthen Brazilian near-term ethanol demand, but they could not lift sugar up into positive territory. The Brazilian trade group Unica released their latest supply report which said that Center-South sugar production during the first half of October came in at 1.831 million tonnes. While this was below trade forecasts, it was a 59.1% increase over the comparable period last year. Sugar’s share of first half October crushing came in at 48.27% which compares to 39.17% last year, and helped to bring sugar’s full-season 2022/23 crushing share ahead of last season’s pace.
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