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Export Demand Shows Improvement


Cotton prices have started to break out above the recent consolidation zone, as export demand for US cotton has shown some improvements. If the market can avoid any bearish surprises from the USDA WASDE report today, it could go into the weekend on an upbeat note. Cumulative sales for 2023/24 have reached 77.5% of the USDA forecast for the marketing year versus a 5-year average of 78.6%. The trade seems to be expecting little or no changes in today’s USDA WASDE report, which could leave the market vulnerable to a surprise.

cotton field w close up


A large portion of coffee exports from Africa and southeast Asia to Europe travel through the Red Sea, and the recent flare-up in missile and drone attacks on ships in that area have underpinned prices. The US and allies responded with drone attacks on several Houthi targets overnight, escalating tensions but also hitting some key areas. March coffee was lower overnight but stayed inside yesterday’s range. Vietnamese farmers are reportedly holding back on sales and dragging their feet on delivering on previous commitments due to the shipping uncertainty, and this has helped lift London Robusta futures back to contract highs this week. Yesterday’s CPI report showed December US food and beverage CPI fell to its lowest year-over-year rate since June 2021 at 2.7%. The long-term decline in inflation in developed economies is viewed as supportive to restaurant and retail shop consumption.


March cocoa gapped higher overnight, which put the market back near contract highs. The BMI unit of Fitch Solutions is projecting a 2023/24 global production deficit of 170,000 tonnes, which is significantly larger than the 90,000-tonne deficit they have estimated for 2022/23. They also said they expect prices to soften due to lower demand. The December US CPI came in higher than trade forecasts at +3.4% year-over-year, but this was far below the +6.5% rate from December 2022. The long-term trend of declining inflation offers a counterpoint to the argument that high cocoa prices will shut off demand. Chocolate is a “small luxury,” and demand has been resilient against high prices.


The UNICA bimonthly sugar supply report showed Brazilian Center-South sugar production for the second half of December at 236,000 tonnes, 35.6% above the same period last year. Mills have extended their crushing season this year due to dry weather, but sources say there is not much cane left to harvest. This suggests there will be little left over when harvest resumes later this year. Second-half December cane crush came in at 4.872 million tonnes, 79.9% above last year. Ethanol production was 526 million liters, up 62.9%. Sugar’s share of crushing fell to 37.1% from 43.4% in the first half of December and 47.0% a year ago. Domestic ethanol sales for all of December totaled 2.709 billion liters, 17.7% above last year. This was the fifth month in a row that sales exceeded year-ago levels. The 6% shift in crushing from sugar to ethanol suggests improving ethanol demand. It may also be an indicator that this season’s crushing operations are nearing an end. There have been few if any signs that India will resume sugar exports this quarter, and Thailand’s exports are expected to be significantly lower this season, both of which underpin sugar prices. Crude oil prices were sharply higher overnight in reaction to the US strikes on Houthi targets, and this provides additional support to sugar.


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