India Expects Decline in Sugar Production
In two of the last three sessions, March sugar has fallen to a new 8 1/2 month low, only to bounce more than 1 cent and close higher on the day. India is still expected to see a decline in sugar production this year, despite the restrictions on ethanol production. The US Climate Prediction Center has increased the chances for El Nino to last through April and it has also increased the odds for this to be a “strong” event. El Nino tends to bring hotter and drier than normal conditions to Southeast Asia during the December-February time frame, which could create additional problems for major producer Thailand, which has already seen a steep decline in production this year. The Brazilian real extended its recovery move yesterday, and that combined with a bounce in energy prices lent carryover support to sugar on the ideas that higher gasoline prices will ease pressure on Brazil’s Center-South mills to produce sugar for export.
March coffee traded to its highest level since April yesterday, despite a slight increase in the estimate for Brazil’s 2023 coffee production. An improved risk tone, prompted by cool inflation readings and comment by the Fed Chairman the suggested there could be as many as three rate cuts in 2024, has supported the market this week. Also, concerns about global robusta supply have lent carryover support to the NY (Arabica) contract. A sharp rally in the Brazilian real has also lent support on ideas it would ease pressure on Brazilian farmers to market their crops. The Brazilian government agency Conab raised its forecast for 2023 Brazilian coffee production to 55.07 million bags from 54.36 million estimated in September. The US CPC has increased the odds for El Nino to last into April, and it has also increased the chances for it to be “strong” event. El Nino can bring hot and dry conditions to Southeast Asia, a key robusta growing region.
There may be some concerns the prices at 46-year highs will hurt demand, but the market is also receiving a steady supply of bullish supply news. The west African dry season appears to be fully underway, with little or no rainfall in the forecast through the end of next week. This could boost harvest in the near term, but it will eventually slow production down until the rains resume. The US Climate Prediction Center said the Oceanic Nino Index (ONI) reading for September/November was +1.8 Celsius, which is the highest since January/March 2016. The CPC expects El Nino to last through the Northern Hemisphere winter, with a 60% chance of a transition to neutral conditions in April-June. The presence of El Nino can bring drier than normal conditions to west Africa, and a strong El Nino could increase the chance of this happening. The steep decline in the dollar this week was accompanied by sharp gains in the Euro and British pound, which increases the buying power for European grinders, but comments by ECB President Lagarde that the risks to Euro-zone economic growth continue have cast a shadow over the demand outlook.
Another dismal export sales report this week highlights the lackluster demand outlook for the cotton market. March cotton closed lower yesterday despite an improved risk tone, a steep decline in the dollar, lower crude prices, and an equity market rally that would normally offer support. US cotton export sales for the week ending December 7 came in at 57,765 bales for the 2023/24 marketing year and 13,640 for 2024/25 for a total of 71,405. This was down from 145,997 the previous week and was the lowest since October 5. Cumulative sales for 2023/24 have reached 7.976 million bales, down from 8.752 million a year ago and the lowest for this point in the marketing year since 2016/17. Sales have reached 70% of the USDA forecast for the marketing year versus a five-year average of 73% for this point in the season.
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