West Africa Sees Rain, Faces Black Pod Risk

COCOA

December Cocoa saw a mild reversal higher yesterday after falling to its lowest level since July 21 earlier in the session. The market may have gotten overdone on the low demand-theme, and traders may be getting a bit more concerned about the weather in West Africa. Farmers interviewed by Reuters this week complained of black pod disease, which they attributed to cool and overcast weather during August. The dry pattern in the main cocoa growing regions in southern Ivory Coast and southern Ghana may finally be starting to lift.

COFFEE

December Coffee is higher this morning but inside yesterday’s range. This follows a move yesterday in which the market traded to its highest level since it reached a contract high in April but then closed lower on the day. It is no surprise that US imports of Brazilian coffee plummeting in August in reaction to the 50% tariffs on Brazilian imports into the US. Cecafe reported that the US imported 301,099 bags in August, down from 562,723 bags a year earlier, for a decline of 46%. Germany was the biggest importer for the month at 414,109 bags, followed by Mexico at 251,166 bags (+90% from a year ago) and Colombia at 112,948 (+578%). Cecafe President Marcio Ferreira told journalists that there was little possibility of re-exporting coffee beans to the United States via third countries and that sending raw beans via third countries would be “very easy” for the American government to spot, but the export numbers to Mexico and Colombia seem to be telling a different story. Would importing Brazilian coffee allow those countries to export more of their own?

SUGAR

October Sugar was higher overnight and came close to taking out 9-day moving average, as the market continued its bounce off Monday’s 2 ½-year+ lows. Friday’s Commitments of Traders report showing managed money traders net short 108,019 as of last Tuesday, close to the 5 1/2-year record of 111,026 from August 5, and this left the market vulnerable to a short covering rally. Reports that ethanol margins had improved in Brazil may have lent some support, but that may be a long shot given the favorability that sugar has garnered this year in the cane crushing mix and Brazil’s increased focus on corn as an ethanol feed stock.

COTTON

December Cotton is higher this morning after pushing through resistance at the 9-day moving average. The market has climbed up off last week’s five-month low, possibly on short covering ahead of the USDA Crop Production and Supply/Demand on Friday. The recent COT report showed the funds were net short a substantial 66,369 contracts, which left the market vulnerable to a rally. Analysts’ forecasts call for slight increases in US production and ending stocks in the USDA reports, but the range of expectations in pretty wide. US crop conditions slipped a little in August, but they were starting from a strong level, and the conditions report this week showed them bouncing back. Texas, the biggest producer, has 48% rated good/excellent versus a five-year average of 28%. A bigger concern may be US export prospects, and we suspect that the weekly export sales reports will be a greater focus in the weeks ahead unless the production numbers show a surprise. World Weather Inc. says West Texas precipitation will be restricted over the next ten days with net drying likely, which should be beneficial for cotton after the abundant rains in late August.

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