Brazil Focuses on Ethanol

SUGAR

March Sugar was higher overnight and was back in the vicinity of Monday’s three week high. In just four sessions, the market managed to recover 2.01 cents (11%) off 22-month lows. The bi-monthly UNICA report on Brazilian Center-South sugar production that was released yesterday showed cane crush and sugar production fell in the first half of January, but that is not unusual this time of year. Cane crush for the period was down 64.1% from last year, and sugar production was down 78.2%. Ethanol production was up 16.4%, as ethanol’s share of crushing capacity increased to 79.2% from 66.0% a year ago. Cane crush and sugar (and ethanol) production tend to drop off this time of year as the arrival of seasonal rains slow harvest and crushing activity. Ethanol production is running ahead of a year ago, which may be in response to the sharp drop in sugar prices in December and up until last week. India’s information minister said today that the government has raised purchase prices for ethanol that state-run fuel retailers must pay to sugar mills. The world sugar market succumbed to heavy selling earlier this month in the wake of news that India would allow sugar exports for the first time in over a year. Now India seems intent to boost ethanol usage by edict rather than by trying to keep prices low by limiting sugar exports and encouraging crushers to focus more on ethanol.

COCOA

March Cocoa gapped higher overnight, and it appears to be poised to test last week’s high at 11,777. World Weather Service reported no rainfall in West Africa over the past 24 hours. They do expect some additional showers and thunderstorms next week, but most will be near the coast and away from key growing regions. They added that seasonal rains usually begin as scattered showers and thunderstorms in southern parts of Ivory Coast, Ghana, Benin, Nigeria and Cameroon in February,  and the recent shower and thunderstorm activity may be signaling a relatively normal start to the season. There is still need for cooler temperatures and rain soon because of the stress that persistent heat and dryness has induced in recent weeks.  ICE cocoa certified stocks increased 26,918 bags yesterday to 1.319 million, the highest they have been since January 8. Stocks are up 55,095 in the past two sessions, and they are above week-ago levels for the first time in at least five months. The number of bags pending review jumped 22,000 bags yesterday to 25,624, the highest since late November. The recent arrival of rains and the sudden jump in ICE stocks does mark a change in the news trend.

COFFEE

March Coffee traded to new all-time highs overnight as it continued its march higher. Yesterday Conab put Brazil’s 2025 coffee production at 51.8 million bags, down 4.4% from 2024, citing extreme heat and drought earlier this year. They put arabica output at 34.7 million bags, down 12.4% from a year ago. The robusta crop was forecast to grow 12.4% year on year to 17.1 million bags, as rains benefited the top producing state of Espiritu Santo. India’s coffee exports are expected to decline more than 10% in 2025 (from the previous year’s record 295,402 metric tons) due to lower production and reduced carryover stocks from last season, industry officials told Reuters yesterday. A 10% decline in exports would be the equivalent of 492,000 60-kg bags. India is the world’s seventh-largest coffee grower. ICE certified arabica stocks increased 2,000 bags yesterday to 927,650. This was the first daily increase since January 17.

COTTON

March Cotton is down for the third straight session, as it has gradually given back its gains from the strong export sales report last week. After 2-3 weeks of strong sales, traders are clearly not believing that this is the beginning of a turnaround. The recent improvement may have been in response to low prices and/or buying ahead of the week-long Lunar New Year holiday. Several times this year the market has seen a brief rally in the wake of some bullish news only to go back and make new lows. The dollar is up off Monday’s six week lows, which does not help US export prospects, and a generally weak trend in crude oil could may make man-made fibers more attractively priced. There may also be some residual anxiety over the various tariff proposals on fears it could spark retaliation against US exports.

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