March Cocoa Drops on Tariff News

COCOA

March Cocoa sold off sharply overnight  to its lowest level since November 6, 2024 on expectations for reduced US tariff rates for Ecuador, which is the third largest cocoa producer in the world, and on a Rabobank forecast for ample global cocoa supply into the 2026/27 season. US officials said yesterday that the nation will remove tariffs on some foods and other imports from Argentina, Ecuador, Guatemala and El Salvador under framework agreements that will give US firms greater access to those markets. Ecuador’s 2024 production is estimated at 480,000 metric tons, behind only Ivory Coast’s 1.850 million and Ghana’s at 600,000. One official said that the framework deals for most of the countries should be finalized within the next two weeks, with additional agreements possible before the end of the year. They added that tariff rates will remain for these countries but that the framework agreements will provide “relief” in certain areas, “including bananas.” They did not have precise number for cocoa or coffee, but they said they expect some positive effect. Rabobank said yesterday that they expect cocoa prices to continue their decline into 2026 on global production increases and demand weakness. They suggested production could exceed consumption by 403,000 tons in 2026/27 season and an estimated surplus of 328,000 tons in 2025/26. They also pointed to investments in cocoa production in Latin America and Indonesia are stepping up production. This will eventually help diversify production, leaving the market less reliant on West Africa, which currently produces around 65% of global output. Coastal areas in Ghana received moderate to light rainfall in the last 24 hours, and southern Ivory coast had light rain. ICE stocks fell 13,479 bags yesterday to 1.770 million, their lowest since March 20.

COTTON

March Cotton fell to a new contract low overnight but was back in positive territory later in the session, as sellers were not able to press the market too far ahead of the monthly supply/demand (WASDE) report later this morning. The trade is looking for increases in US and world supply, but as this is the first update since September and there has been scant evidence on export sales or US crop conditions in the intervening weeks, this report may carry more weight than normal. USDA did release an export sales reports yesterday that covered the week ending September 25, which could be described as “middling,” as it showed an improvement over the previous week but was behind the week before that. The fact that India and China were significant buyers was notable, although China’s purchases were mostly for next year’s crop. Shipments are running slightly ahead of last year. The next update will be released on November 20, and it will cover the week ending October 2. For today’s WASDE report, traders are looking for modest increases in US and world production and ending stocks. A Bloomberg poll has an average trade expectation for US 2025/26 cotton production at 13.52 million bales (range 13.00-14.30 million), up from 13.22 million in the September update. Exports are expected at 12.08 million versus 12.00 million in September, and ending stocks are expected at 3.76 million (range 3.30-4.40) versus 3.60 million previously. World 2025/26 production is expected to come in at 117.91 million bales (range 117.00-119.00 million) versus 117.68 million in September, world consumption at 118.12 million versus 118.83 million in September, and world ending stocks at 73.64 million versus 73.14 million in September. A surprise decline in US production would likely spark a significant rally off short covering.

COFFEE

March Coffee sold off overnight on news that US will remove tariffs on some food and other imports from Argentina, Ecuador, Guatemala and El Salvador and perhaps on optimism that the an agreement will be worked out with Brazil. Guatemala is the seventh-largest Arabica producer in the world at 3.4 million bags versus 40.9 million for Brazil and 12.5 million for Colombia (2024 USDA estimates).  An official said the new framework trade agreements are expected to help lower prices for coffee among other goods, but they not offer specifics. Brazilian Foreign Minister Mauro Vieira was set to meet with US Secretary of State Marco Rubio yesterday in Washington to continue trade negotiations, but there have been no updates as of this morning. The trade is also awaiting a decision by the US Supreme Court over whether President Trump had the authority to implement some of the tariffs. Rabobank said yesterday that they expect the coffee market to shift to a substantial global surplus of 7 million to 10 million bags in 2026/27 season, supported by a recovery in Brazil’s arabica production. This will be an “on year” for Brazil’s arabica crop, and conditions so far look decent, as seasonal rainfall has picked up after a slow start. Key growing areas got decent rains earlier this week, but they have trended drier as the week progressed and could stay that way into next week. World Weather Inc said this week that after a favorable distribution during November, there may be another period of erratic rain during a parts of December and January. This does not necessarily hurt production potentials as long all areas receive coverage, even if it is lighter than usual. Vietnam may see excessive rains again next week with new flooding likely in central parts of the nation. ICE certified stocks fell  1,500 bags yesterday to 403,430, the lowest since March 6, 2024.

SUGAR

March Sugar covered a wide range overnight, first falling below yesterday’s low but then reversing to a new high for the move. After a two week consolidation around five-year lows, the market has managed a modest recovery this week on suggestions that the world supply may not be quite burdensome as recently forecast. There are also suggestions that low prices are bringing out buyers and that crushers may start to focus more on ethanol. UNICA will release its bi-monthly update of Brazil Center-South sugar production today, which will cover the second half of October, and this may garner more attention than usual on the theme of ethanol production. The last report UNICA released showed that for the first half of October, sugar’s share of production fell below 50% for the first time since April. A survey of analysts conducted by S&P Global is calling for the cane crush to come in at 29.42 million metric tons, which would be up from 27.21 million for the same period last year and down from 34.04 million in the first half of the month. Sugar production is expected to come in at 1.915 million tons versus 1.776 million last year and 2.484 million in the first half. This would put cumulative production as of November 1 at 37.931 million tons, up 1.2% from a year ago versus +0.9% as of October 16. Ethanol production is expected at 1.845 billion liters versus 1.665 billion for the same period last year and 2.013 billion in the first half. This includes corn as well as cane-based ethanol. Sugar’s share of ethanol production is expected to come in at 45.03% versus 45.91% a year ago.

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