US Cotton Production Lowest Since 2015

COTTON

US cotton production is expected to be the lowest since 2015, according to the USDA’s supply/demand report on Friday at 13.99 million bales down from 16.50 million in the July report and below the low end of expectations. Ending stocks came in at 3.10 million bales down from 3.80 million in July. This was the lowest ending stocks figure since 2016/17 and below the average expectation. The stocks/usage ratio came in at 21.2%, down from 23.8% estimated in July and the lowest since 2020/21. World ending stocks came in at 91.60 million bales down from 94.52 million in July and is the lowest since 2021/22. December cotton rallied sharply on the news, pushing through the July highs to its highest level in almost a year and closing sharply higher on the day, but it gave up all those gains overnight. It did manage to stay inside Friday’s range. The 1-7-day forecast has below normal precipitation and above normal temperate across the US cotton growing region except possibly the northern Delta. The 6-10- and 8-14-day forecasts call for above normal temperatures across the south and mostly normal precipitation in west Texas. The normal rainfall in the longer-term outlook is an improvement from the forecast late last week and may have something to do with the selloff overnight. Last week’s Crop Progress report showed 34% of the US crop was rated poor/very poor as of August 6, which is the same as last year and well above the 10-year average of 18%. Texas was 55% P/VP versus 46% a year ago and a 10-year average of 26%. We do not expect much improvement for Texas in this afternoon’s report given the light rainfall last week. Crop conditions outside of Texas are better than normal.

COCOA

The cocoa market may see more profit-taking and long liquidation early this week, but it could be closing in on a near-term low. The supply/demand balance is tight, with a second straight global supply deficit expected for 2022/23 and El Nino threatening a third one for 2023/24. The US Climate Prediction Center last week gave El Nino a 90% chance of lasting at least through the end of April and a 95% chance of it lasting through February. El Nino typically brings drier than normal conditions to West Africa and southeast Asia, and a strong event could sharply reduce cocoa production. A group of major Ivory Coast cocoa processors reported that their Q2 grindings were 3% above last year, which also reflects improving global demand. One factor in last week’s selloff was a more positive take on west African weather. Drier conditions over the past week have allowed the mid-crop harvest to improve after heavy rains caused delays earlier this summer. Wet conditions have also reportedly caused problems with disease, which affected the current mid-crop output and could damage the upcoming crop as well.

COFFEE

Mostly dry weather is expected to continue over Brazil’s major Arabica growing regions, which will minimize harvest delays. Safras and Mercado reported that Brazilian farmers had sold 41% of their 2023/24 crop by early August, which was behind the long-term average of 46%. Traders report that the trade flow is improving and that with the Arabica harvest almost 80% complete, selling pressure could increase in the coming month. El Nino threatens to further reduce robusta coffee production in Indonesia, the world’s fourth largest grower, which has already seen its output fall to its lowest level in a decade after La Nina brought excessive rains last year. There are reports that El Nino is already affecting more than two-thirds of the nation, including Java and parts of Sumatra, two key coffee producing areas. Last week, the US Climate Prediction Center gave a more than 95% chance that El Nino conditions would prevail from December through February. Tighter robusta supplies will lend support to arabica prices as well.

SUGAR

Czarnikow reported that global demand for raw sugar fell 20% in the first half of 2023 versus a year ago, while refined sugar consumption held steady. This suggests that refiners have been drawing down their supplies, waiting for lower prices to replenish. This could put a floor under prices as commercials buyers emerge on dips. El Nino is expected pull Thailand’s production sharply lower in 2023/24. Last week, the International Sugar Organization forecast a global sugar deficit of 2.12 million tonnes for 2023/24. A Reuters poll put Brazil’s Center-South 2023/24 production at 39.0 million tonnes (up from 33.7 million in 2022/23) and India’s at 32.15 million tonnes (versus 32.8 million in 2022/23). Russia has seen a significant surge in production this season, yielding approximately 100,000 tonnes of beet sugar year to date as of August 10, according to Soyuzrossakhar, the Russian Sugar Producers’ Union. This is up 250% from 40,000 a year ago.

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