USDA Report Pressures Cotton Market
The USDA supply/demand report came in bearish yesterday, and this pressured the cotton market. It was lower overnight but held inside yesterday’s range. China cut their estimate for 2022/23 cotton imports to 1.85 million tonnes, down 200,000 from a previous forecast, according to the latest China Agricultural Supply & Demand Estimates. Forecast for 2022/23 cotton consumption was also reduced to 7.7 million tonnes, down 150,000 from an earlier estimate. The USDA report showed US 2022/23 cotton production at 14.03 million bales versus an average expectation of 13.62 million and a range of expectations from 13.42-13.81 million. US ending stocks came in 3.00 million bales versus 2.73 million bales expected (range 2.50-3.00 million) and 2.80 million in October. US production increased from last month rather than decrease as expected, and it came in well above the upper end of trade expectations. Ending stocks were revised higher as well, but they were still down from a year ago. If the CPI number comes in hot on Thursday (above +0.7% on the month), it could raise expectations for another jumbo Fed rate hike in December, which could threaten demand. Traders will also be looking at the export sales report. Last week’s report showed net sales of 202,931 bales for the week ending October 27, which was the strongest week since September 1.
The cocoa market continues to face concern over near-term demand, which may become more uncertain after this week’s events. However, the market continues to benefit from bullish supply developments, which could provide support on pullbacks. March cocoa was lower overnight but held inside Wednesday’s range. The was able to overcome a negative shift in global risk sentiment and outside markets yesterday and climb to a new five-month high. Large pullbacks in the euro, the British pound, and European and US equity markets put pressure on cocoa prices early on ideas it could dampen demand in Europe and North America. A tight early-season West African cocoa supply situation has been exacerbated by a strike at the Ivory Coast port of San Pedro, and that has helped the market to regain upside momentum. Many West African farmers were unable to use enough pesticides and fertilizers due to high costs, so despite decent soil moisture levels during the fourth quarter, this season’s main crop cocoa production may fall short of market expectations. Ghana and Nigeria are seeing outbreaks of black pod disease, which could also lend support.
Coffee prices have fallen more than 50 cents since the start of the fourth quarter, a decline of 24%. The market was down overnight but it held above yesterday’s 16-month lows. It was down for the third straight session yesterday, but it did manage to slow its descent. ICE exchange coffee stocks rose by 15,182 bags on Wednesday for the fourth increase in a row. There are more than 266,000 bags waiting to be graded at the port of Antwerp, and that huge build-up continues to be a major source of pressure on the market. European out of home consumption continues to be negatively impacted by high inflation. The Brazilian real fell back under pressure yesterday, which weighed on coffee as the weak currency encourages Brazilian producers to market their remaining supply. Brazil’s major Arabica-growing regions have daily rain in the forecast through late next week, which should benefit the 2023/24 crop. Rabobank is estimating an 8% increase in the Brazilian coffee crop in 2023/24. A few Arabica areas are still at risk of having some dryness in December and January. They also warn of a global surplus in 2023/24 if recession takes hold.
March sugar traded lower overnight but held in upper end of yesterday’s breakout range. The market held upside momentum yesterday and reached a 3 1/2 month high. This season’s Brazilian Center-South cane harvest is behind average pace due to delays, and that has lent support to the market. A boost in Brazilian ethanol exports and a sense that millers there might shift production back to ethanol from sugar also provided support. Brazil’s rainy season begins soon, and millers will begin to shut down plants for the season. The USDA supply/demand report showed that the US 2022/23 sugar stocks/usage ratio is estimated at 13.5%, down from 14.8% last month, and this news gave a further boost to sugar prices. Lower than expected US beet production helped tighten the outlook. Chinese officials reduced their sugar production estimate for this season to 10.05 million tonnes from 10.35 million last month.
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