Texas Cotton Crop May Worsen
Based on the action in December cotton last week, it doesn’t appear that the trade is too concerned about the US cotton crop, perhaps because weather worries are offset by weak demand. The weekly crop conditions reports, and the near-term weather outlook, suggest this year’s crop will be smaller than USDA’s latest projections. The market closed lower on Friday despite a turn lower in the dollar that should be good for US exports. After another week of hot and dry weather in West Texas last week, Texas crop conditions could see further declines in this afternoon’s Crop Progress report. Last week’s report showed 41% of the US crop was rated good/excellent as of July 30 versus 38% a year ago and 51% on average and 31% rated poor/very poor versus 28% a year ago and 17% on average. Texas was 17% G/E versus 24% a year ago and 39% on average and 50% P/VP versus 37% a year ago and 24% on average. Hot weather is expected to continue across the south over the next two weeks, with much above normal temperatures in west Texas that could hurt crop fill. However, there are normal to above normal chances of rain that could mitigate some of the damage if it arrives in time.
Since a negative daily key reversal on July 27, cocoa’s coiling price action has signaled a loss of upside momentum, which could make the market vulnerable to a selloff. Recent positive earnings guidance from several major chocolate makers suggested that demand has remained strong despite cocoa prices reaching 12-year highs. On the other hand, all three major cocoa processing regions (Europe, Asia, and North America) saw their second quarter grindings come in 5% or more below year ago levels. Over the weekend there were updated forecasts for West African growing areas showing daily rainfall most days this week, which could cause some harvest and transportation delays for the late midcrop production. A strike throughout Nigeria was suspended after one day, so the flow of their cocoa beans to port facilities could reach full speed again soon.
While the coffee market has been lifting clear of its mid-July lows, it may have trouble regaining upside momentum early this week with good harvest weather in Brazil and no current threat to the upcoming crop. On Friday, the market followed through with Thursday’s negative daily reversal and went on to post a heavy loss for the session. Forecasts for dry weather over Brazil’s major Arabica growing regions should help minimize delays for this year’s harvest, which weighed on prices going into the weekend. The Brazilian currency broke a three-day losing streak on Friday, but it still finished the week with a heavy loss, and this pressured coffee on ideas it will encourage Brazilian growers to market their product.
Sugar’s main source of pressure is Brazil’s Center-South sugar production, which over the first 3 1/2 months of the 2023/24 season was 21.9% ahead of last season’s pace. The Center-South cane crush was 10.1% ahead of last year, but sugar’s share of that crushing was 4.4% higher. Crude oil is lower this morning after reaching a nine-month high last week, but if it resumes its uptrend, it could lend support to sugar. Ethanol is expected to have a larger share of Brazil’s gasoline mix by the 2024/25 season, but ramped-up corn-based ethanol production could reduce the amount of cane to be diverted to ethanol. Recent weather over Center-South cane growing regions has been mostly dry, which could minimize delays to harvest and crushing and keep sugar production ahead of last season’s pace. The Brazilian currency reached its highest level against the dollar in 14 months on July 28, but the pullback last week may provide an incentive for Center-South mills to produce sugar for export.
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