Cocoa Market Remains Weather Sensitive

COCOA

December Cocoa was slightly higher overnight, extending yesterday’s recovery bounce. The market remains sensitive to news about the weather in west Africa. Weather has been generally good this summer, and expectations seem to be building for a strong start to the main crop harvest, which is expected to begin this month. World Weather Service says that southern and east-central Ghana, a few areas in southern Ivory Coast and many areas in Nigeria and Cameroon are still reporting moisture deficits from the past 30 days. The say the situation is not critical and that showers and thunderstorms are expected to come and go frequently during the next week to 10 days. The most significant rain will continue to fall in northern production areas, leaving the south a little drier, but there will be time for rain to shift southward later this month. Ghana is piloting a system that traces cocoa beans from farm to port as it gears up for a new EU law banning the import of commodities linked to deforestation. The law goes into effect in December. About 60% of Ghana’s production is exported to the EU.

COFFEE

December Coffee approached Wednesday’s two week low at 240.55 overnight but bounced back to near unchanged on the session. The level could be a key support area today, as Wednesday was the second time the market held that level in the last two weeks. Hot and dry conditions in Brazil continue to raise concerns about next year’s crop, but there is still time for rain to come and induce flowering. Typhoon Yagi is expected to bring heavy rain and flooding to northern arabica coffee areas of Vietnam Saturday/Sunday.  Winds from the storm may cause some minor cherry droppage or limb damage in eastern parts of the region, but these instances are not expected to be widespread.  The robusta crops in the Central Highlands should not be impacted by the storm. Arabica only represents about 4% of Vietnam’s coffee output. The Central Highlands are forecast to see periodic showers and thunderstorms during the next week, which should be sufficient to support normal crop development, but rains could be a little more sporadic than desired. The International Coffee Organization reported that as of July 31, global green coffee exports for the 2023/24 season (October-September) were up 10.6% from the same period last year. They said importers were trying to replenish stocks as well as anticipate loadings ahead of the EU’s anti-deforestation regulation that goes into effect in December. Brazil and Colombia were responsible for most of the increase, as their arabica crops helped make up for the shortage of robusta from Vietnam. Vietnam exported 1.05 million tons in January-August, down 12.5% from last year. Brazil exported 207,071 metric tons of green coffee in August, up from 197,471 for the same period a year ago.

COTTON

December Cotton was lower overnight, possibly feeling pressure from lower equity markets. This morning’s US jobs report could have some bearing on the cotton market today, as a weak number could raise concerns that the Fed has waited too long to cut rates. Weekly export sales will be released this morning. Last week’s report showed net sales of 135,187 bales for the week ending August 22, which was the highest since the marketing year began on August 1 but not very impressive. Cumulative sales had reached 31% of the USDA forecast for the 2024/25 marketing year versus a five-year average of 52% for this point in the season. The five year average net sales for this week is 290,800 bales. More heavy rainfall could be headed to the Gulf Coast this weekend, which could delay harvest in the Coastal Bend and nearby areas and also raise quality concerns.

SUGAR

October Sugar has managed to hold retracement support this week and appears ready to resume its uptrend. The market is finding support from diminished production prospects from Brazil. Indian government sources told Reuters overnight that the nation plans to extend its ban on sugar exports for a second straight year. This should not be a surprise to the market, as the government’s desire to boost the ethanol industry has been well known. They also don’t want the risk of high domestic sugar prices. Brazil exported 3.93 million metric tons of green coffee in August, down from 3.63 million for the same period a year ago. An early end to the Brazilian harvest due to dry conditions could tighten supplies and support higher prices. Thailand’s harvest typically begins in November. Typhoon Yagi could produce maximum sustained wind speeds of 140 mph today, which could cause damage to some cane growing regions in southeastern China.

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