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Cotton Damage Remains Unknown


December cotton gapped lower overnight as the market reacted negatively to Fed Chair Powell’s hawkish dialogue yesterday. Equity and energy markets are lower this morning, and the dollar is higher, and none of this is supportive to cotton. The market has been consolidating in a narrowing range for three weeks, after posting a 1-year high on September 1. The rally has stalled as demand concerns have developed in the face of what looks to be a poor US crop. It is already known the US crop is in poor shape based on weekly crop conditions reports, but the extent of the damage will not be known until harvest is further along. The market could get a bounce today if the weekly export sales report shows an improvement over recent weeks.


Key outside markets and global risk sentiment took a negative turn after the US Fed Chairman indicated more rate hikes would be coming at his post meeting press conference yesterday. Equity and energy markets both reacted negatively, and the dollar gained, and none of this is bullish for sugar. Mostly dry weather in the forecast for Brazil’s major cane-growing region through late next week, which should minimize harvest and crushing delays. South Asian supply issues continue to underpin the market, with India unlikely to resume exports until at least the second quarter of 2024 and Thailand widely expected to have their 2023/24 exports fall well 2022/23. However, as of Wednesday, India’s 2023 monsoon rainfall was only 7% below the long-period average, which is fractionally below what would be categorized as “normal.” This may help India avoid a sharp decline in cane yields. Brazil remains on track for record exports for the 2023/24 season, as their sugar output is well ahead of last season’s pace.


December coffee broke a four-session winning streak yesterday and inched lower overnight, but some fresh bullish supply news from Brazil could help the market find support. The Brazilian agency Conab lowered its 2023/24 coffee production forecast to 54.36 million bags, but it increased its Arabica estimate to 38.16 million, up from 37.9 million in its May forecast. A strong heat wave moving over most of Brazil this week is raising concerns about the health of the coffee fields and the upcoming crop. Forecasts call for 40 degrees Celsius (104 F) in many regions, with no rain until at least the end of the month. Trees are sensitive to temps above 33 C during the reproductive stage, as flowers could fail to develop into fruits. However, this is only the first flowering, and more important ones are expected in early October. The heat will not be as big a problem if the rains return.


The prospect that higher minimum farmgate prices in early October will lead to a heavy flow of cocoa to West African port facilities has pressured the market this week. December cocoa gapped lower on the open yesterday, continuing its selloff from 44-year highs. The market was overbought technically, and longs got anxious. The UK CPI reading saw a surprise downtick yesterday, but it failed to provide meaningful support to cocoa. Hawkish talk out of the US Fed Chairman supported the dollar and thereby pressured the pound and the euro, which makes it more expensive for European grinders to buy cocoa. The tight global supply situation has not gone away, and concerns over west Africa production remain. Heavy rains this year have triggered swollen shoot disease and the spread of black pod diseases. There is also the possibility that dryness brought on by El Nino will cause problems with the 2023/24 crops, but that remains questionable, as the correlation with weather in west Africa is not that strong.


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