Coffee Market Reacts to Frost Reports in Brazil

COCOA

December Cocoa was lower overnight and gave back some of its gains after Friday’s move to its highest level since July 15. The market found support last week from limited near term supply and possibly some concern over a dry trend in west Africa for the past month. Dry weather is typical this time of year, and seasonal rains are expected to return later this month or early next. Growers have been reporting generally good growing conditions despite the dry trend. An article by Reuters last week said recent data indicated that Ghana was not managing to contain the outbreak of swollen shoot disease. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 1,187 contracts of cocoa for the week ending August 6, reducing their net long to 23,965.

COFFEE

December Coffee gapped higher overnight and traded to its highest level since July 12 on what seems to be a reaction to a reports of light frost in some Brazilian growing areas. World Weather Service reported that patches of soft frost occurred in Sul de Minas, Brazil, near the Sao Paolo border, but they don’t believe there was much impact on coffee crops, as key growing areas were not affected. Some leaf mass injury may have occurred, but they say temperatures were not low enough for long enough to induce any threat to 2024/25 blossom buds. More cold temps are expected this morning and Tuesday and Wednesday mornings but with similar outcomes. Temperatures may be slightly cooler, possibly resulting in a little more frost and a couple of light freezes, but damage to crops is expected to be minimal. Other bullish factors for coffee include a lower than expected harvest in Brazil and tight supplies of robusta beans. Commerzbank said there has been buying ahead of the EU deforestation rules. Safras & Mercado said the Brazilian harvest had reached 92% complete as of last Tuesday. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 3,381 contracts for the week ending August 6, reducing their net long to 51,071. This is still in the upper end of the historic range. The record net long was 71,811 from April.

COTTON

Cotton prices appear to be benefiting from short covering ahead of today’s USDA supply/demand report. For the report, a Bloomberg poll has an average trade expectation for US 2024/25 production at 17.02 million bales (range 15.75-19.02 million) versus 17.00 million in the July report. Ending stocks are expected to come in around 5.27 million (range 4.50-6.0 million) versus 6.00 million in July. World ending stocks are expected to come in around 82.62 million bales (range 81.60-83.90 million) versus 82.63 million in July. The July projections for US and world ending stocks were the highest since 2019/20. World Weather Service expects good harvest weather in south Texas and the Texas Coastal Bend. West Texas is not expected to get much moisture in the coming week to ten days, but it will not be completely dry either. Southeastern US saw some flooding last week from remnants of Hurricane Debby, but the crop has potential to recover well if dry weather can prevail for a while. US Delta crops are rated favorably with little change likely. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 4,583 contracts for the week ending August 6, increasing their net short to 52,024. This was a new record, which left the market vulnerable to short covering. December Cotton traded back above the 9-day moving average on Friday and held above that level overnight

SUGAR

October Sugar saw a minor rally last week off Monday’s 16- month low, which could have been short covering ahead of the UNICA Brazil production report for the second half of July that is due out any day. The previous report showed first-half July Center South sugar production at 2.939 million tons, down 9.7% from last year and down from 3.247 million in the second half of June. A survey by S&P Global Commodity Insights had a median forecast for second half of July at 3.6 million tons, which would be down 2.4% from a year ago but up from the first half. The extended dry period this spring is expected to eventually pull production down. As of July 16, cumulative production was running 10.4% ahead of a year ago. Brazil saw a soft frost overnight in southern areas and could see more the next three nights. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 19,876 contracts of sugar for the week ending August 6, which took them from a net long position to a net short of 19,415. This is a close to a flat position.

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