Hot/Dry Conditions Likely to Impact Mid-Crop Output

COCOA

After seeing March cocoa hold above critical support at $11,000 early yesterday, the market faltered, closed on its lows and fell through the 21 day moving average leaving the charts bearish. Clearly, three straight higher lows left the market vulnerable to today’s failure and gap lower opening. In fact, with the March contract opening below the ultra-critical support level (as indicated in yesterday’s commentary) of $11,000 it is likely that long profit taking from last year’s massive run up in prices has invaded the marketplace. While the washout could accelerate sales by longs protecting massive profits, the market should be underpinned by the prospects of another global deficit. In the longer term, hot and dry conditions over West African growing areas will likely have a negative impact on the region’s upcoming mid-crop output and that will matter at some point soon. In addition to overall global tightness, some supply from Ghana could have trouble reaching the market as financing issues following last month’s election have led to a sharp drop off in Ghana’s official cocoa purchases, which should provide support to the cocoa market.

COTTON

A downward bias remains in cotton, especially after yesterday’s quasi-breakout up has been clearly rejected by the trade. While some traders see cotton tracking upward with energy prices, we are skeptical of the two markets tracking tightly together and we are certainly skeptical of explaining mere modest moves in cotton prices by modest moves in crude oil. Trade forecasts (average analyst estimates) are calling for Friday’s USDA Supply/Demand report to show a downtick in 2024/25 US production, (a minimal decline of 100,000 bales), with exports down a mere 60,000 bales and ending stocks to fall by 120,000 bales. World production, world consumption and world “ending stocks” (from an average of analyst estimates) are also expected to be down minimally.

COFFEE 

While coffee prices in general remain within a 30-day plus sideways consolidation, the market is giving off signs of an upward bias with a series of higher lows and this morning’s venture toward an upside breakout on the charts around 310.25. Apparently, excess rainfall over Vietnamese growing areas has led to harvesting issues and difficulty in drying beans, and that is providing support to coffee prices. In fact, Vietnamese exports in 2024 were officially pegged to have dropped by 17.2% versus the previous year pushing that 2024 bullish supply theme into 2025. However, there is a situation developing for European buyers with the incendiary condition in the Middle East resulting in extended shipping time from African ports resulting from restricted transit through the Suez Canal. The shipping delays are significant enough for the International Coffee Organization to confirm the congestion in the Suez Canal has led to shipping delays for European end-users, which increases their costs should be seen as a minimally supportive for global coffee prices. With cocoa index funds reportedly adjusting annual positions this morning and the last COT positioning report showing a lofty net long of 48,758 contracts from last year’s 44% rally traders should not rule out the potential for large declines. With portions of Brazilian growing areas expected to receive more than 200 mm of rain by the end of the week, that should weigh on prices if it were not for trade talk suggesting Brazilian exports will begin to slow.

SUGAR

With a general pattern of lower highs and lower lows in place since the end of 2024, three straight closes at the low end of daily trading ranges and very significant open interest of 957,000 contracts a retest of sub $0.19 is likely. News from the Indian government suggests the potential for increasing the minimum selling price of government sugar and that should lead to higher prices in Indian physical markets which is likely to reduce demand. However, Thailand’s Cane & Sugar Board reported their 2024/25 sugar production through Tuesday at 1.98 million tonnes, which is 17% below the comparable period last year and should provide some support to sugar prices. In another minimal underpin for sugar prices, Pakistan sugar exports to Afghanistan exploded in the first half of 2024/2025 with the net value of exports reaching $211.8 million compared with only $5.9 million in the same period in the prior year. In conclusion, the bull case is heavily reliant on future crop production problems surfacing which were clearly dented by ongoing rains in Brazil.

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