Coffee to Resume Uptrend?
May coffee was lower overnight but held inside Friday’s big range up. The market’s breakout to the upside of a coiling pattern on Friday has put it in position to resume its uptrend and possibly test the December highs. Extremely tight robusta supplies are lending support to the Arabica market, and the Houthi attacks on vessels in the Red Sea have European buyers looking to Brazil instead of Asia. The rally on Friday was impressive given that it followed some bearish supply news. Cecafe reported on Friday that Brazil exported 3.96 million bags of coffee during January, up 39% from a year ago. Arabica exports totaled 3.21 million bags and robusta 457,787. Little or no rain is in the forecast for Minas Gerais, Brazil until late Thursday, but there is a 56% or greater chance of rain in each of the following nine days, with varying intensity. Last Wednesday, the International Coffee Organization said global coffee exports in December were up 13.6% from the previous year and that October-December exports were 6.8% higher.
May cocoa saw choppy action overnight near the top of Friday’s range. The market reached new all-time highs again on Friday, but it also saw volatile, two-sided action that took it sharply lower at times. There has been a stream of bullish supply news over the past couple of weeks, particularly the hot and dry conditions in West Africa that have lowered expectations for the upcoming mid-crop. But there are also concerns that high prices will cut into demand, especially in the wake of lower earnings reports from Hershey, Cadbury and Mondelez. However, even if conditions in West Africa improve in the short term, upcoming crops could continue to be dragged down by the damage done to cocoa trees last summer.
Friday’s blowout rally appeared to be tech buying. Cotton tends to make big moves and Friday’s rally may have been the culmination of stronger than expected US exports over the past several weeks. The strong export pace has also fueled reports that a larger than normal portion of the US crop is already sold. The Red Sea attacks have raised shipping costs, especially for Brazilian cotton to Bangladesh and Pakistan, and this has kept interest in US cotton strong. The reduction in US and world ending stocks in Thursday’s supply/demand report was also helpful. However, the world numbers were still ample, even if they were revised down from the January report. US exports have picked up in recent weeks, which has eased concerns about cancellations and possible loss of business to South America or Australia. The weekly US Drought Monitor showed 19% of US cotton production was in an area experiencing drought, most notably the Delta, which could also raise concerns about upcoming plantings.
May sugar edged lower overnight but held inside the recent sideways pattern. The bulls may be disappointed that the marker has not broken to the upside after a couple of attempts last week. Brazil’s record 2023/24 production has helped offset shortfalls in India and Thailand, but there are concerns that the extended dry period in Brazil will cause problems with the upcoming crop. Rainfall in the center-south region has been 13%-17% below average since December, but there is a chance of showers or thunderstorms every day for the next two weeks, with only two days being below a 60% probability. The rains may not be widespread or particularly heavy, but this pattern could help improve soil moisture.
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