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Tight Supplies May Get Tighter


West African nations continue to see sharp reductions in cocoa production this season, and this has kept the cocoa market making new highs this quarter. Ivory Coast port arrivals as of Sunday were 36.4% behind the same period last year. A Reuters report yesterday stated that swollen shoot disease has been found in 11 of Ivory Coast’s 13 cocoa growing regions and that their 2023/24 cocoa production may see a 20% or more decline from 2022/23. The improvement in risk sentiment since the Fed “pivot” towards lowering rates helps offset concerns about high prices hurting demand. The arrival of the dry season in west Africa could improve production in the near term given the prevailing wet conditions this summer and fall, but output will slow once the dry conditions set in. The relationship between El Nino events and west African weather is tenuous, but the strength of the current event could lead to lower midcrop production as well. This could help cocoa sustain its uptrend.


Supply issues with the world’s three largest robusta growing nations continue to provide support to the coffee market. However, London robusta coffee finished Monday with a moderate loss and was lower overnight, and this could offer some headwinds for the NY futures. March NY coffee came close to testing last week’s 8-month high overnight, and that level, 194.50, will be a key resistance area today. Global risk sentiment has strengthened in the wake of last Wednesday’s FOMC rate guidance, and this has provided outside market support as well as improving the demand outlook. Dealers said that the coffee harvest in Vietnam is about 75% complete, with progress boosted by dry weather over the past few days. Industry sources told Reuters that buyers from the European Union are starting to scale back their purchases from small farmers in Africa, including in Ethiopia, as they prepare for an EU law that will ban the sale of goods linked to deforestation. The law is set to go into effect in late 2024.


Cotton prices are eroding from slack demand and possibly by farmer selling. The sharp improvement in global risk sentiment in the wake of the Fed pivot last week, including moves to new all-time highs in the major stock indices, has yet to support the cotton market. Likewise, a sharp rally in crude oil yesterday lent little support even though higher oil prices make man-made fibers more expensive. Rainfall forecasted for Brazil this week should benefit their crop. Recall that there have been reports that growers have switched some acreage to cotton from other crops due to the dry conditions during their planting season. Also, rain in the US Delta and Texas this week should improve crop prospects for 2024.


The selloff in sugar from 12-year highs has reached a key inflection point overnight, and we could see some short covering emerge with the approach of the holiday. The India Sugar Mills Association said that their nation’s 2023/24 sugar production through last Friday was 10.7% behind last season’s pace, as an early start to crushing in Uttar Pradesh was offset by later than normal starts in Maharashtra and Karnataka. A survey conducted by Reuters indicated that low reservoir levels in those two states, which together represent nearly half of India’s sugar output, are prompting many farmers to plant crops that need less moisture and mature faster than cane. Brazil’s sugar production remains on a record pace, and that has been a source of pressure on the market.


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