Historic Rally Continues

COCOA

March cocoa was higher again overnight, as the market continued its long-term rally to historic, 46-year highs. It has been led higher by low production out of west Africa, which was reinforced on Sunday with another low Ivory Coast port arrivals number. Ivory Coast growers remain optimistic about the mid-crop, which will run from April through September. Reuters reports that although rain was scarce last week in most of the cocoa regions, good soil moisture content helped boost the development of many small pods, and given the number of pods on the trees, growers expect the mid-crop to start off stronger than last year. The Australian Bureau of Meteorology is reporting that El Nino ocean-warmth is past its peak, with seas surface temperatures in the central tropical Pacific now declining and a return to normal expected in the southern hemisphere’s autumn. This could ease concerns about global production.

COFFEE

March coffee was moderately lower overnight following a steep, three-day rally that took the market to its highest level since December 29. Houthi attacks in the Red Sea are slowing down the shipment of robusta coffee from Asia to Europe, and robusta prices have reached their highest level in 16 years as a result. The US and UK leveled new attacks on Houthi strongholds overnight, but the Houthi leader remains defiant. The rally in robusta coffee has lent support to Arabica as well, and there are reports of shipping delays at Brazil’s major coffee-exporting port of Santos due to a lack of containers. Drier than normal weather in Brazil’s Arabica growing regions has also raised concerns about the upcoming crop.

SUGAR

Rains in Australia have defied expectations for the dry summer that had been widely anticipated due to El Nino. The southern and eastern regions of the nation have benefited, and sugar yields have increased there. However, this has been offset by damage to crops in the northern regions from Cyclone Jasper earlier this month. Another system, expected to be named Tropical Cyclone Kirrily today, is expected to hit landfall overnight Thursday. The Unica report on Brazilian sugar production for the first half of January is expected to come out later this week. Production has been running at a record pace, and it will be interesting to see how much output has slowed for the season. The harvest season normally lasts until the rains start in late November or early December, but it was extended this year due to abnormally dry conditions. But if production remains higher than expected, it could raise concerns about dry conditions damaging upcoming cane production.

COTTON

March cotton fell overnight after a strong, two-day rally off a bullish turn in demand expectations, but it held most of its gains. Last week’s export sales report showed the strongest sales since November 2 and shipments the highest since last June. Market bulls had hoped to see a burst of sales ahead of the Lunar New Year, and they got their wish. The question is whether sales will continue to be strong or whether the recent surge was a flash in the pan. The market has also drawn support from strong US consumer confidence readings and a rally in US equity markets to new all-time highs. Against this is a better-than-expected outlook from Australia after recent rainfall defied expectation that El Nino would bring drier than normal conditions.

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