US Cotton Crop Concerns
December cotton rallied overnight to its highest level since September 5, as concerns about the US crop appear to be outweighing concerns about demand. Monday’s weekly crop conditions report showed the US crop is close to record low good/excellent ratings and record highs for poor/very poor. It is too late in the season to see much improvement. Any rain at this point could damage open bolls. The consistently poor crop ratings have the trade looking for further revisions lower in future USDA supply/demand reports. This lends support to the market, but demand is still a question, and the steadily increasing dollar makes US exports less competitive on the world market. The trade is also concerned that China has shifted their buying to Brazilian cotton from US cotton. Cumulative US cotton export sales for the 2023/24 marketing year have reached 5.485 million tonnes, which is their lowest for this point in the season since 2016. Sales have reached 47% of the USDA export forecast for the marketing year versus a five-year average of 58% for this point. If export sales do not pick up soon, the USDA may be revising its export forecast lower, along with production.
December coffee bounced yesterday but was back lower overnight, and it could test the August/September lows today. The market managed to move higher yesterday in the face of a steep selloff in equities and weaker Brazilian real, but those forces could put pressure on coffee today if they continue their trends. ICE exchange coffee stocks were unchanged yesterday with no grading taking place, and they remain more than 38,000 bags below where they were at the end of August, putting them on course for an eighth monthly decline in a row. Major Brazilian Arabica growing regions are expected to see rainfall in the coming days, which will offer relief after recent the recent bout of extreme heat, but a warm and mostly dry pattern is expected to return early next week. Hot and dry weather could disrupt flowering and fruit setting for the 2024/25 Arabica crop. The market staged a steep rally off the weather earlier this month but gave up all those gains when the forecast for rain emerged. Rainfall in key coffee growing regions of Vietnam, the world’s largest robusta producer, has been heavy.
Cocoa continued its correction of a long-term uptrend overnight with a move to its lowest level since August 24. Weaker equity market action sets a bearish tone from a demand perspective, and ongoing weakness in the euro and British pound make it more expensive for European grinders to buy cocoa. The cocoa market has risen to all-time highs off tight supply and expectations that El Nino will bring lower production for the upcoming season, but El Nino has yet to materialize as a threat to west African producers. It is expected to bring drier than normal conditions to West African and southeast Asian growing areas through the first quarter of 2024, which increases the likelihood that the 2023/24 season will see the third global production deficit in a row. However, the issue this summer has been too much rain, which has created ideal conditions for fungal diseases like black pod and swollen shoot, and growers can use some sunny weather. Until reports of a lack of adequate moisture start to emerge, cocoa may have difficulty resuming its upward track.
March sugar sold off yesterday in the wake of the bimonthly UNICA supply report out of Brazil, but it held support overnight. Declines in the Brazilian real this week have added to the pressure on sugar, as it encourages mills to market their product for export. The UNICA report showed Center-South sugar production during the first half of September at 3.116 million tonnes, up from 2.871 million for the same period last year. Cane harvest is up 10% from last year. Sugar’s share of crushing for the first half of September was 51.1% versus 48.9% for ethanol. This was the highest reading for sugar’s share so far for the 2023/24 season, and it was the fifth report in a row above 50%. Center-South domestic ethanol sales during the first half of September were 12.5% above last year. Strong Brazilian production is bearish, but El Nino and the potential disruptions to Asian output remain in the background.
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