El Niño Raises Coffee Weather Risk

COFFEE

As in the cocoa market, the US CPC’s announcement on Thursday that El Nino will strengthen through the end of the year raised anxiety about upcoming coffee crops,  but it has little to do with near term supply. CPC gave a 97% chance that El Nino will persist through early spring 2027. This extension of the time period means it will coincide with the flowering and cherry setting for the 2027 crops.  Hotter, drier weather during Brazil’s flowering season can reduce arabica yields. In the meantime, a recent drier trend in Brazilian arabica growing regions should help the harvest advance after the interruptions from heavy rain in June.

SUGAR

Increased El Nino concerns have had a much less dramatic effect on the sugar market compared to cocoa or coffee, even though it already appears to be reducing moisture in India, one of the world’s largest producers, and is expected reduces rainfall amounts in Thailand this summer. Czarnikow this week projected a modest global sugar deficit of 600,000 metric tons for 2026/27 versus a surplus of 1.4 million forecast in May. World production was lowered to 178.5 million tons from 179.0 million previously. Unlike coffee, the sugar market has already climbed out of its supply hole, which provides a bigger cushion against weather threats. The extreme heat and drought in Europe is playing a role in those lowered production forecasts expectations, with the beet crop under threat and likely to get worse. The sugar market appeared to draw some support this week from the rally in crude oil, as that boosts the attraction of using cane to produce ethanol. Uganda’s sugar production may rise to 810,000 tons in 2026 from 697,805 tons last year on improved cane supply, according to data from the Uganda Sugar Manufacturers’ Association, an industry lobby group. World Weather Inc. says southern Indonesia is steady drying and there is not much reason to expect change in the next two to three weeks, which could lead to stress for short-rooted crops like sugar cane. Southern India is unlikely to see much rain for the next two weeks, which will stress crops. Conditions are not expected to improve significantly in western Europe.

COCOA

September Cocoa was lower early Friday after reaching its highest level since November 5 on Thursday. The rally is being fed by concerns that El Nino will sharply reduce production. The US  Climate Prediction Center said on Thursday that El Nino will strengthen through the end of the year, with a 97% chance it will persist through early spring 2027. They also said that there is  an 81% chance of a very strong El Nino during October-December that would rank among the largest on record going back to 1950. However, the market may be overstating those concerns. Barry Callebaut said their sales volumes increased 5.7% in the March-May quarter, the first quarterly increase in two years. This was after volume fell 2.8% to 1.5 million metric tons over the first nine months of their fiscal year that runs from September to August. It’s still early in the season, but El Nino has yet to pose a significant threat to West Africa.

COTTON

December Cotton has been consolidating Tuesday’s gains in anticipation of the USDA supply/demand report that will be released during the session on Friday. A Bloomberg survey of analysts calls for a slight increase in US production and ending stocks based on the increased plantings from the June Acreage report, but the numbers also acknowledge reduced yield and/or increased abandonment rates, perhaps on concern over the persistent dry conditions in west Texas.

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