Wild Price Action in Cocoa
Cocoa’s wild price action on Monday bore signs of market capitulation, even with a bullish supply setup. December cocoa soared to a new contract and 12-year high yesterday but then saw a massive selloff, and finished with a wide-sweeping, outside day session and a minimal loss. The wild action was attributed to commercials rolling short positions from the September futures into the December. Farmers in Ivory Coast reported that the above average rains last week helped strengthen the upcoming main crop. Recent heavy rainfall in west Africa had been viewed as bullish for prices because it interrupted the mid-crop harvest and raised concerns about disease, but rainfall is welcome for upcoming main crop, especially with El Nino threatening to bring drier conditions.
Good harvest weather in Brazil presents a bearish supply outlook for coffee, and the weaker Brazilian currency could encourage more farmer selling. European Robusta coffee supplies remain tight, which has resulted in increased shipments from Brazil, and that has provided carryover support to New York Arabica prices. The coffee market benefited from the positive turnaround in global risk sentiment yesterday, as prices were able to regain upside momentum after a downbeat finish last week, but that support evaporated overnight. The Brazilian currency remains close to a four-week low, which could lead to more aggressive marketing by Brazilian producers.
The cotton market is at a critical point, with crop conditions worsening, the crop setting bolls, and a slightly better chance of west Texas seeing some rain in the next five days. In the weekly Crop Progress report, cotton good/excellent ratings stayed steady, but poor/very poor got worse. The report showed 41% of the US cotton crop rated good/excellent (G/E) as of August 6, versus 41% the previous week, 31% a year ago a 10-year average of 49%. Poor/very poor ratings (P/VP) totaled 34% versus 31% last week, 34% last year, and a 10-year average of 18%. The high poor to very poor ratings suggest abandonment rates could be larger than what the USDA is currently forecasting. The July USDA report had an abandonment rate of 14%, while last year it was 47%. The 1-5-day forecast has rainfall totals of 0 to 0.5 inches in West Texas and the panhandle. This is not a lot, but it is an improvement over the last few weeks.
October sugar prices continue to drift lower, as buyers seem to be in no hurry as Brazilian sugar production proceeds at a strong pace. A steep selloff in crude oil overnight, weaker gasoline prices, and the turn lower in the Brazilian currency adds further incentive for Brazil’s Center-South mills to produce sugar for export rather than ethanol for domestic consumption. Czarnikow is projecting a global supply deficit of 900,000 tonnes for 2023/24, and another firm, Covrig Analytics, said it expects a deficit of 2.2 million tonnes, as they do not expect the near-record output from Brazil to be enough to offset reductions in other regions. Czarnikow put Thailand’s sugar production at just 7.4 million tonnes, down from 10.8 million this season. There have been indications that India may extend its sugar export embargo through the first quarter of 2024, until they get a better grasp of upcoming production given the prospects that El Nino will bring dry conditions to their cane growing areas. However, an official with India’s Balrampur Chini Mills projected 2023/24 sugar production at 32.5 million tonnes versus the India Sugar Mills Association’s forecast of 31.7 million.
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