Cocoa prices continue to hold their ground within last Thursday’s trading range, being underpinned by a bullish supply setup. But weakness in the Euro and the British Pound this week could put pressure on cocoa because it makes it more difficult for European grinders to acquire near-term supply, which is already expensive with prices close to 12-year highs. El Nino is expected to bring drier than normal conditions to West African and southeast Asian growing areas for 2023/24, raising concerns that the cocoa market will experience a global supply deficit for a third consecutive year. This follows heavy rainfall in West Africa in June and July that led to the spread of black pod and swollen shoot diseases, which could also damage the upcoming main crop. Recent strong earnings reports from major US and European chocolate markets indicate that demand has been resilient to higher cocoa prices.
Coffee has continued to see wide-sweeping price action as it has lifted clear of its mid-July lows. While near-term demand concerns may pressure the market this week, coffee has shown signs that it put in a longer-term low last month. Mostly dry weather is in the forecast for Brazil’s major Arabica growing regions through the middle of next week, which should minimize delays to this year’s harvest. The Brazilian currency lost more than 1.2% with its gap lower yesterday and subsequent decline to its lowest level in a week and a half. This put pressure on coffee yesterday on ideas it would encourage Brazil’s producers to become more aggressive in marketing their product to foreign customers.
December cotton rallied on Tuesday but not as much as one would have expected in the wake of the crop conditions report on Monday night. The report showed only 41% of the US crop was rated good/excellent as of Sunday, down from 46% the previous week and below that 10-year average of 51%. The Texas crop fell to 17% G/E from 24% the previous week, 24% a year ago, and 39% on average. The record low is 14% from 2011. The fact that Texas is below last year’s disastrous level should cause concern. A sharp rally in the dollar may have limited cotton’s gains on ideas that a strong dollar makes US cotton more expensive on the export market. Very hot weather is expected to continue in Texas, with temperatures over the next seven days expected to be 4 to 8 degrees above normal.
Sugar prices have regained upside momentum this week despite lukewarm global risk sentiment. Reports that Egypt bought 150,000 tonnes from Brazil over the weekend is viewed as a positive indicator for demand. Recent forecasts calling for India to receive below normal monsoon rainfall during August has supported sugar, as it could have a negative impact on the 2023/24 cane crop and may lead to reduced cane plantings for 2024/25. The India Sugar Mills Association has forecast their nations 2023/24 production at 31.68 million tonnes in 2023/24, down 3.4% from 2022/23. They expect sugar mills to divert 4.5 million tonnes of sugar to make ethanol, up from 4.1 million this year. These forecasts assume normal rainfall this year, which is questionable with the emergence of El Nino.
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