Sugar Exports Flow from Brazil
October sugar pressed lower overnight, and it could be set for a further correction of its rally off the June 29 lows. News that Brazil’s sugar output remains well ahead of last season’s pace has pressured the market this week. The Unica report on Tuesday showed Brazilian sugar production in the first half of July was up 8.9% from a year ago and total production for the 2023/24 marketing year 21.9% higher. This strong pace may have been enough to spark a further correction in sugar prices. There were reports last week that the Brazilian government is considering increasing their ethanol gasoline blend requirement to 30% from the current 27%, which could result in a 3 million-tonne decline or more in sugar production. RBOB gasoline prices rallied yesterday after the weekly EIA stocks report, and this seemed to lend some late carryover support to sugar, but the sugar prices were lower again overnight. There were reports that Chinese vessels were loading around 750,000 tonnes of sugar at Brazilian ports, which would be the first large movement this year. Some sugar mills in India are expressing a concern about a shortage of cane supply because farmers sold their crop as fodder due to the poor start to the monsoon. Traders are eying Indian production with the onset of El Nino.
September cocoa traded to another new contract high yesterday, and it gapped higher overnight, as the market continued to focus on tight supply and concerns about the west African crop. Heavy rainfall over West African growing areas has led to supply bottlenecks, and traders are concerned that the damp conditions are spreading disease that could affect the upcoming main crop. There are reports that swollen shoot disease is killing old tress, and there have been several reports of black pod disease over the past few weeks. The weather forecasts show a preponderance of rain and clouds with only brief chances of sunshine through early next week, leaving little opportunity to dry out. Ironically, there are also concerns that El Nino will bring overly dry conditions to west Africa and lower production next season, which could result in a third straight global supply deficit in 2023/24. This would be the first time there have been three deficits in a row since the 1967/68 season. Positive sales guidance from a major European chocolate maker earlier this week has helped the market overcome the recent disappointing grind data from Asia, North America, and Europe.
September Coffee gapped higher overnight, and it could test Monday’s high today. The Brazilian harvest is advancing at a fast pace, but tight old crop supplies (especially robusta coffee) is supporting the Arabica market. ICE exchange coffee stocks were unchanged on Wednesday, but they have fallen more than 282,000 bags (35%) since the start of the year. The Brazilian currency recovered yesterday after a brief selloff the day before and was back near one-year highs. This eases pressure on Brazil’s growers to market their newly harvested crops. Brazil’s largest co-op Cooxupe reported yesterday that their 2023 harvest was 58.8% complete as of July 21 up from 52.6% a year ago and their fastest pace since 2020. Dry weather in the forecast for Brazil’s major Arabica growing regions through late next week should keep the harvest pace strong.
December cotton sold off sharply overnight after trading to its highest level since last August yesterday. The market has marched higher off concerns about the Texas crop in the face of extreme heat and a lack of rainfall. The 1-5-day forecast shows no rain for west Texas, with daily highs in the high 90s to low 100s. The 6-10-day forecast has above normal temperatures with normal to above normal chances of rain, and the 8-10-day is a little less hot and has normal chances of rain. It appears that the crop has a way to go to be as poor as last year, particularly on the national level. In the July supply/demand report, the USDA projected 2023/24 US cotton production at 16.50 million bales, up from 14.47 million last year. Ending stocks were projected at 3.80 million bales, up from 3.25 million last year and the highest since 2019/20. If 2023/24 production falls to last year’s levels, and we make the unrealistic assumption that demand numbers do not change, stocks would fall to 1.77 million bales, which would be the lowest on record. Clearly there is a lot at stake if the rains do not come through. However, US production coming in as bad as last year seems like a stretch. Traders will be looking ahead to the weekly USDA export sales report today to see if there is any improvement.
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