Cotton Traded to New Contract Lows

COCOA

December Cocoa was moderately lower overnight but fell to its lowest level since July 2. The market is holding up fairly well against heavy selling in the equity sector off worries that the US is slipping into recession. Cocoa sold off sharply last week as the trade has become more optimistic about the 2024/25 west African main crop. Decent rainfall mixed with sunshine has improved the outlook through the summer. World Weather Service says production west African growing areas should see less frequent and less significant rain for a while, but rain will resume later this month and in September. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 538 contracts of cocoa for the week ending July 30, reducing their net long to 25,152. This is down from a record net long 79,541 from last September and is far from an extreme.

COFFEE

September Coffee was lower overnight and came close to testing last Thursday’s four-week low. Active harvest in Brazil appears to be putting pressure on the market. Safras & Mercado said last week that the Brazilian harvest was 87% complete. The Brazilian real sold off sharply on Friday and traded to its lowest level since March 2021, which increases the incentive Brazilian marketers to sell. However, the US dollar was down sharply overnight for the second session in a row, falling to its lowest level since December 2021, and this may stem the decline in the real. ICE arabica stocks increased by 7,275 bags on Friday to 830,094, which was the highest since June 25. There were 47,411 pending review, up 10,888 from Thursday. Honduras coffee exports in July were down 11.5% from a year ago. Exports for the first 10 months of the 2023/24 marketing year (October-July) have reached 4.28 million bags, down 9% from the same period last year. Persistent dry weather in key Brazilian growing areas is raising concerns about 2025 production, and this will likely continue until those areas see decent rain. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 4,208 contracts of coffee for the week ending July 30, reducing their net long to 54,452. This is down from a record net long of 71,811 contracts from April.

COTTON

December Cotton traded to new contract lows overnight, as the steep selloff in Asian and European equity markets added to demand concerns. This followed a steep selloff in equities on Friday in the wake of a lower than expected US jobs report. The dollar falling to its lowest level since late 2021 could make US cotton more competitive on the global market, but that is small consolation when all the talk seems to be about a potential US recession. The southeast could see heavy flooding this week from Hurricane Debby, which makes landfall on the northeast Gulf Coast of Florida. This has the potential to damage crops in eastern Georgia and South Carolina. World Weather Service says west Texas weather looks conducive to crop development with warm but not hot temps and occasional rainfall. Dry conditions in the US Delta may lead see come moisture stress there. Xinjiang, China’s cotton crop appears to be in very good shape so far this year, and water supply for irrigation remains favorable. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 2,858 contracts of cotton for the week ending July 30, increasing their net short to 47,441. This is a record net short for these traders and leaves the market vulnerable to short covering if resistance levels are taken out.

SUGAR

October sugar extended last week’s selloff overnight and traded to its lowest level since March 2023, pressured by the steep selloff in global equity markets and in crude oil, which fell to its lowest level since February. Lower crude oil prices pressure ethanol, which lowers the incentive for cane crushers to divert production away from sugar. From fundamental standpoint, the sugar market is a balancing act between lowered expectations for Brazil’s output and increasing expectations for Thailand and India. Dry weather in been a concern for Brazilian output. Harvest got off to a strong start, but first-half July Center-South sugar production was down 9.3% from last year. Cumulative production since the season began on April 1 was still 10.4% above last year. Improved monsoon rains in India bode well for production there this year. World Weather Service said Thailand experienced some of its greatest rain coverage seen in recent weeks in the west and south last week, and significant rain fell in eastern sugarcane areas as well. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 7,557 contracts of sugar for the week ending July 30, taking them from a net short position to a net long of 461.

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