Mild Overnight Recovery in July Coffee

COFFEE

July coffee staged a mild recovery overnight after a quick four-day selloff from contract highs. The market may see some support today on reports of lower-than-expected yields in Brazil’s robusta harvest, which is just getting underway. Growers blame the extreme heat the region experienced during their summer (late last year and early this year). The president of Brazil’s largest coffee coop said they are hearing from farmers that beans are smaller than last year, that they did not develop as they should. However, he also pointed out that at the start of the harvest farmers tend to pick beans in early maturing fields that are not the most productive. London Robusta futures were approaching last week’s contract highs overnight, and this lends support to the NY Arabica contract. Brazil’s robusta regions were more impacted by El Nino than the arabica regions were.

COCOA

July cocoa sold off for the second straight session yesterday and it was down 13% from the contract high at yesterday’s low. This was the third time this month the market has pulled back 10% or more from a contract high, but the previous two times it rallied back to new highs. Rainfall over West African growing areas this week is expected to benefit the region’s upcoming production and is the first positive news for the crop in quite a while. Ecuador’s annual cocoa production is on course to hit 500,000 tonnes in the next two years, potentially overtaking Ghana as the world’s second-largest grower, the head of Ecuador’s coffee exporters association said. Ecuadorean growers may struggle to sell beans to Europe due to the EU regulations on deforestation, which go into effect at the end of this year. Ecuador does not have the mapping and traceability systems for cocoa needed to verify that their cocoa beans did not come from deforested lands, and they are trying to raise money to establish one. Similar concerns have been raised in West Africa, and the difficulty meeting the new law could roil the market next year. The rapid shift from El Nino to a La Nina expected this summer could benefit next season’s production.

COTTON

July cotton is consolidating after last week’s selloff, as it assesses the relatively low price for the start of a crop year. US soil moisture conditions are better than they were this time last year and two years ago. US plantings are off to a decent start but close to average. There isn’t much weather premium built into the market, and this may provide support as we go into the growing season. US plantings are expected to increase by 440,000 acres this year, up 4% from last year. Near-term US export prospects are limited by a small carryout and by expected competition from Brazil and Australia. The dollar was lower yesterday, and this could benefit US export prospects if this trend continues, but bear in mind that the nearby Dollar Index is near its highest level since October.

SUGAR

July sugar has seen choppy, two-sided action this week after a minor bounce last week. UNICA is expected to release their bi-monthly report on Brazilian sugar production for the first half of April later this week. A private survey of analysts conducted by S&P Global Commodity Insights is calling for sugarcane crush to be nearly 15% above year ago levels. However, hotter-than-normal weather is expected for Thailand in the days ahead, which is struggling after a poor cane crop last year. The excessive heat is being attributed to El Nino, which is expected to last until June. Thailand had its hottest day of the year on Monday at 44.2 degrees Celsius (111.6 F), which is close to their all-time high of 44.6 C from 2016 and 2023. The Brazilian real has staged a recovery this week after falling to its lowest level since October last week. The stronger currency eases pressure on Brazilian mills and growers to sell.

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