Sugar Higher Today
Sugar is higher today on concerns that India’s exports will remain restricted until the first half of the new season, which starts in October. Brazil’s output is strong, but for the moment the market is focused on India’s harvest and El Nino. Overnight it was reported that India is not considering allowing sugar exports until they have a better idea of how new crop is faring in the face of El Nino. They normally decide on export quotas before the start of the new year. El Nino usually brings dry conditions to India. Sugar prices rallied 48% during the first four months of 2023 off disappointing Indian production and the government’s decision to lower its export quota. Brazil has been the world’s largest sugar producing nation in three of the past four years. Brazil’s Center-South mills started their operations earlier than normal this year, and the cane crush has been running 24% larger than last year. Sugar’s share of cane crushing was 7.1% above last year, as the decline in gasoline and crude oil prices lowered the incentive for ethanol production. There are concerns El Nino could bring heavy rains to Brazil, which could hurt their second harvest in August and September.
Cocoa is on course for a ninth positive month in a row, but the market is also into technically overbought levels, leaving it vulnerable to a pullback this week if US CPI number on Tuesday comes in hot or the FOMC raises rates again at their meeting on Wednesday. Declining inflation levels in many developed economies have improved the demand outlook for discretionary items such as chocolates, and that has provided underlying support to the cocoa market this year. West African supply remains tight after two months of their midcrop harvest. Many analysts, including the ICCO, are forecasting a second large global cocoa production deficit in a row in 2022/23. El Nino, which officially started last week, is expected to bring drier than normal conditions to West Africa and southeast Asia. These areas account for five of the eight largest cocoa growing nations in the world and represent 74% of 2022/23 global production. This has raised concerns that there will be another production deficit in 2023/24. September cocoa traded to new contract highs on Friday and finished the week with a gain of 140 points (up 4.6%) for the fifth positive week in the past six.
Tight global coffee supplies, El Nino, and tight exchange stocks could continue to provide underlying support to the coffee market. September coffee traded lower overnight on apparent follow-through from Friday’s rejection of Thursday’s sharp rally to two-week highs, but it climbed back into positive territory as the session progressed. Dry weather this week could speed the harvest in Brazil and help ease supply tightness. ICE exchange coffee stocks fell by 1,842 bags on Friday and reached a new low for the year. Robusta prices fell sharply on Friday after trading to a record high on Thursday, and this put additional pressure on Arabica prices. The arrival of El Nino could have a negative effect on production in Brazil and Colombia, but its strongest impact could be felt in Vietnam and Indonesia, which are major producers of robusta coffee. Those nations’ supplies have already reached extremely low levels. Vietnam’s coffee exports in May were down 8.5% from April, and 2023 exports were running 3.9% behind last season’s pace.
A return to hot and dry weather in west Texas this week could lend some support to cotton, but the market would likely need those conditions to extend to mount a significant rally, and that may be difficult under the expected El Nino conditions. West Texas cotton areas have seen some improvement in soil moisture over the past couple of weeks, but the forecast for the next week shows above normal temperatures, below normal precipitation, and a loss of soil moisture. The US Climate Prediction Center has confirmed that El Nino conditions are present, which could mean increased rainfall for Texas. In Friday’s USDA supply/demand report, US 2023/24 cotton production came in 16.50 million bales versus an average trade expectation of 16.35 million and a range of expectation of 15.50 to 17.80 million. This was up from 15.50 million in the May report.
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