Demand Expectations Undermine Cotton Market

COCOA

December Cocoa gapped lower overnight but bounced off its lows. The market continues to await the arrival of the new crop. Farmers interviewed by Reuters said on Monday that heavy rains in most of Ivory Coast’s main cocoa-growing regions last week boosted the development of the October-March main crop, which is expected to start early and be longer and larger than last season. This was an improvement over the reports of dry conditions for the previous couple of weeks. The International Cocoa Organization’s quarterly statistics release on Friday showed a 2023/24 production deficit of 462 million metric tons versus 439 million in the second quarter update. World production was lowered to 4.332 million tons from 4.461 million previously, and grindings were lowered to 4.751 million tons from 4.855 million. The put ending stocks at 1.324 million tons versus 1.328 million previously and the stocks/grindings ratio at 27.9%, up from 27.4% in the second quarter but still the lowest since 1978-79. Ghana is expected to increase the state-guaranteed price paid to its cocoa farmers by nearly 45% for the 2024/25 season, which would be to help boost farmers’ incomes and hopefully deter bean smuggling out of the country. Ivory Coast cocoa arrivals were estimated at 8,000 tons for the week ending September 1 versus 7,000 tons for the same week a year ago. Arrivals have been running mostly steady with year ago levels for the past three weeks. Cumulative arrivals since the marketing year began on October 1 have reached 1.70 million tons, down 26.4% from a year ago.

COFFEE

December Coffee is near unchanged this morning overnight after falling to its lowest level since August 23 earlier in the session. The market reached a new contract high a week ago but experienced a setback after ICE warehouses had a large number of arabica beans submitted for grading. This has allowed ICE stocks to increase by more than 16,000 bags over the past two sessions to reach their highest level in at least four months. However, there has been not ben any large submissions since the 76,000 that were submitted last week. London robusta prices were higher overnight after a two day selloff from record highs. Honduran coffee exports fell 19.4% in August from the same period last year, the Honduran Coffee Institute (IHCAFE) said yesterday. Shipments totaled 321,303 bags versus 398,875 for the same month last year. Cumulative exports since October reached 4.53 million bags, down 11.7% for the same period last year. Tropical Storm Yagi is expected to intensify to typhoon status in the next day or two and possibly impact some northern Arabica coffee areas of Vietnam. The robusta crops in the Central Highlands should not be impacted.

COTTON

December Cotton was lower overnight after failing an attempt to take out the 50-day moving average. US equity futures point to a lower open, and crude oil is sharply lower, both of which are negative for cotton. The dollar was higher overnight, having staged an impressive recovery from a one-year low last week, and this reduces US export prospects. Poor demand expectations have undermined the market recently despite recent stressful weather for the US crop. Last week’s Drought Monitor showed 43% of the US cotton crop was in an area experiencing drought, up from 30% the previous week and 37% a year ago. Last week’s crop progress report showed 40% of the US crop was in good/excellent condition, versus 33% a year ago and a ten-year average of 49%. This afternoon’s report may show a worsening of conditions. West Texas and the Delta saw ample rainfall over the weekend, which could help improve dry soils. However rain was heavy enough to cause flooding in some areas. This can also damage open bolls and delay harvest. As of a week ago, 28% of the US crop had open bolls, including 45% in Louisiana and 28% in Texas. India is forecast to receive above-average rainfall in September after surplus rains in August, the weather department said on Saturday, which could damage cotton crops.

SUGAR

October Sugar fell to its lowest level in a week overnight but bounced off that level and was back near unchanged later in the session. The market may have gotten a bit overbought after an 8-session rally off 17-month lows that came in the wake of a UNICA report on Brazilian sugar production for the first half of August that was lower than expected. There were reports last week that producer sales in Brazil had picked up after the recent rally. The Brazilian real falling to its lowest level since early August encourages producer selling for export. India’s decision to allow sugar mills to use cane juice to produce ethanol in the new marketing year starting November 1 was viewed as supportive, as this could prolong their sugar export curbs. India may be looking at too much rain in the month ahead with above-average rainfall expected in September after surplus rains in August. The weather department is forecast rainfall at 109% pf the 50-year average. The nation has received 6.9% more rainfall than average since the start of the monsoon on June 1. Germany’s refined sugar production from beets is forecast to reach 4.77 million metric tons in 2024/25, up 13% from last year, according to WVZ Sugar Association. Beet deliveries are expected at 31.59 million tons, up from 29.81 million last year, and average beet sugar content this season is estimated at 17.2%, up from 16.4%.

Interested in more futures markets?  Explore our Market Dashboards here.