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Sideways Until Buyers Emerge?


The cotton market may have difficulty breaking out of its sideways pattern until there is evidence of stronger demand, especially from Asia. March cotton was higher on Tuesday but spent the day inside Friday’s range on what was described as thin, holiday-type trade. The dollar index pushed lower and was threatening to take out Friday’s five-month low, which is supportive to export commodities like cotton, and it pushed lower again overnight. Ongoing strength in the stock market is supportive to cotton as well. China’s National Bureau of Statistics reported that 2023 cotton output totaled 5.618 million tonnes, down 6.1% from 2022 due in part to unfavorable weather conditions in the major producing region of Xinjiang.


March coffee was higher overnight, but prices remained well below last Tuesday’s 14-month high. Reports that shipping companies CMA CGM and Maersk were increasing the number of vessels moving through the Suez Canal in the wake of US-led efforts to prevent attacks in the Red Sea have eased concerns about coffee deliveries. Inventories are down, especially for Robusta coffee, but Arabica production in Brazil is strong and Colombia’s output is improving. There have been reports that Vietnam’s farmers were holding back on sales in anticipation of higher prices, and this has lent support to Robusta prices and coffee prices in general. ICE exchange stocks were unchanged on Tuesday. They remain on course to show their first monthly increase since January, but unless there is a massive inflow this week, they will end December with their second lowest month-end total since 1999.


March cocoa made another new contract high on Tuesday but closed lower on the day, and it could be vulnerable to some profit taking this week. Cocoa arrivals at Ivory Coast totaled 73,000 tonnes for the week ending December 24, down from 112,000 for the same period last year. Total arrivals since the season began on October 1 have reached 747,000 tonnes, down 36.3% from the same period last year. El Nino threatens to hurt production in Ecuador and southeast Asia, and possibly west Africa, though the connection with dry conditions there is tenuous. Cocoa farmers in Ivory Coast interviewed by Reuters said that they were optimistic about the October-March main crop production despite two weeks without rain in the main growing regions and an uptick in the dry Harmattan winds. The region is in its dry season, which runs from mid-November to March. The Harmattan blows down from the Sahara, and it can damage trees when it is strong. Dry conditions are good for harvesting but not good for bean development.


March sugar traded to another new 9-month low on Tuesday, as strong production out of Brazil has eased supply tightness. Brazil’s sugar industry group UNICA reported on Tuesday that Center-South sugar production totaled 925,000 tonnes during the first half of December, up from 303,000 for the same period last year (+244%) but down from 1,403,157 tonnes for the second half of November. Accumulated production since the start of the marketing year has reached 41.746 million tonnes, up from 33.354 million for the same period last year, a 25% gain. Industry observers said that the dry weather has allowed crushers to extend their season, but that could be coming to an end with the recent rainfall. Sugar’s share of crushing was 43.4% versus 39.7% for the same period last year. This shows that mills are still favoring sugar production over ethanol. A recovery in the Brazilian real yesterday to its highest level in 4 1/2-month highs could ease pressure on Center-South mills to export.


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