Global Cocoa Supply Tight

COCOA

The speculator net long position in cocoa is hovering around record levels, but the global supply situation is tight and is expected to get tighter in the coming year, and this could fuel a move back to contract highs. Earlier this year, the International Cocoa Organization projected a 2022/23 global production deficit, the second one in a row and the arrival of El Nino has the trade looking for a third straight deficit in 2023/24. This could also pull the global stocks/usage ratio to its lowest level since the mid-1980s. El Nino is expected to bring drier than normal conditions to West Africa and southeast Asia and too much rain to Ecuador, all of which could lower output. There were also reports last week that Ghana’s 2022/23 crop could be closer to 650,000 tonnes than the ICCO’s current estimate of 750,000.

COFFEE

Coffee prices fell 22% from early June to mid-August, pressured by large Brazilian production and demand concerns. The market may find relief from both of those factors over the next few weeks, and that can help coffee maintain a recovery move going into early September. A “risk off” mood in global markets the past few weeks has raised concerns about consumer demand. Brazil remains on track for large Arabica production this season, after the end of La Nina earlier this year led to better growing conditions. Safras & Mercado said that Brazil’s harvest was 93% complete as of last Tuesday, which suggest that the harvest will be completed within the next few weeks. This could start to slow the flow of coffee to Brazilian ports, but it may take until the middle of next month.

COTTON

After last week’s Drought Monitor showed worsening drought conditions in Texas and other cotton growing states, the trade will be watching this afternoon’s weekly Crop Progress report to see if conditions worsened last week. Last week’s report showed only 33% of the US cotton crop was rated good/excellent versus a 10-year average of 50% and a record low of 31% (set last year). Hot and dry temperatures are expected to return after some mild relief this week. The 6-10- and 8-14-day forecasts call for much above normal temperatures and below normal chances of rain across most of the cotton growing regions, with the severest conditions focused on Texas. India’s June-September monsoon rainfall could end with an 8% deficit, the lowest in eight years, according to the Indian weather office. They expect September’s rainfall to be negatively affected by El Nino. December cotton rallied to its highest level since August 14 on Friday and made further gains overnight, but it fell into negative territory as the session progressed. Economic concerns have at times kept prices in check, particularly regarding with disappointing recovery from Covid lockdowns and the latest concerns over their property sector.

SUGAR

India’s June-September monsoon rainfall could end with an 8% deficit, the lowest in eight years, according to the weather office, as they expect September’s rainfall to be negatively affected by El Nino. The government of India has stated that they could ban sugar exports for the entire 2023/24 season due to tight supplies, stating that they will decide when final production numbers are determined. The state of Maharashtra (which is usually India’s largest or second largest sugar-producing state) had a 17% decline in sugar production this season and is forecast to have an 11% drop in 2023/24. El Nino is also expected to impact Thailand’s 2023/24 sugar production as well, with some expectations that it may decline more than 3 million tonnes from this season. The Unica report last week showed Brazil’s Center-South sugar production 21.7% above last season’s pace as of mid-August. However, sucrose yields have fallen 0.5% below last year, which could lead to full-season sugar production totals falling short of expectations.

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