Lot of Bullish News For Coffee

COCOA

September Cocoa has eased back slightly this morning after a modest rally yesterday off a stronger than expected European grind for the second quarter. Grindings totaled 357,502 metric tons, up 4.1% from the same period last year. This marked an improvement over the first quarter, when grindings were down 2.2% from a year earlier. This was also counter to expectations that high cocoa prices would pull grindings down from last year. One explanation was that chocolate manufacturers were using stockpiles that they had secured prior to prices reaching their highest levels. There has also been a shift back towards grindings in consuming countries and away from origin countries, which is the opposite of the trend prior to this year. Ivory Coast grindings fell 30% year on year in May. The market’s reaction was somewhat bullish but not too exciting. Funds have not been participating. The recent Commitment of Traders reports showed managed money traders were net long 21,000 contracts as of June 25 versus +71,000 in January and +80,000 last fall. Next up is North America and Asia grindings on July 18. The weather forecast has turned drier for Ivory Coast rains in recent weeks have allowed soils to narrow the moisture gap from a year ago. Overall, reports from farmers have been favorable.

COFFEE

September Coffee rallied to new contract highs yesterday but backed off from those levels and closed only slightly higher on the day and was lower again overnight. The market has had a lot of bullish news thrown at the it recently, and traders may be disappointed that it did not sustain the rally. Reports out of Brazil continue to show concern about their production this season. Safras and Mercado reported this morning that Brazil’s 2024/25 coffee harvest has reached 66% complete versus 59% a year ago. Coffee sales have reached 33% of the expected output up from 32% a year ago but below the five-year average of 39%. Other analysts have put arabica harvest at 60% complete and robusta at 80%. Drier than normal weather and above average temperatures have allowed the harvest to proceed quickly, but this has also been detrimental to the plants’ health. Cecafe said yesterday that it expects the robusta harvest to be down 10% from previous expectations. There have been reports of smaller arabica bean sizes this season, but at least one broker said they have been improving recently. Trees at lower elevations suffered heat stress, according to one agronomist. Vietnam’s robusta supply remains tight, with little relief expected until harvest in this fall. ICE arabica stocks rose by 273 bags yesterday to 808,901. Stocks are down 11,728 on the week.

COTTON

The main focus today will be the USDA supply demand report, due out at Noon eastern time. Drought conditions worsened slightly last week, and this trend needs to be watched closely. US crop conditions have fallen below year ago and five year average levels for the first time this year. Georgia, Mississippi and especially North Carolina are the worst in at least five years. Texas is still above a year ago and right at the average. Export sales were disappointing yesterday. Overnight, Brazil lowered its estimated 2023/24 cotton production to 3.636 million tons (16.70 million US bales) versus 3.657 million (16.80 million bales) in its previous forecast and 3.173 million tons (14.57 million bales)  in 2023/23.

For the USDA report today, the trade is looking for US 2024/25 cotton production to come in around 17.16 million bales, with a range of expectations from 15.8 to 17.9 million. This would be up from 16.00 million in the May update and would reflect the increase in planted area in the June 28 Acreage report. US ending stocks are expected at 5.05 million bales (range 4.00-5.65) versus 4.10  million in March. This would be up from 2.85 million last year and the highest since 2019/20 and the second highest since 2008/09. Exports are expected at 13.23 million bales (range 13.0-14.6) versus 13.00 in June. World production is expected at 120.21 million bales (range 118.9-121.0) versus 119.14 in June. Ending stocks are expected at 84.28 million bales (range 83.3-85.00) versus 83.49 in March.

The US drought monitor this week showed approximately 18% of the US cotton crop was in an area experiencing drought as of Tuesday, up from 16% two weeks ago and 15% a year ago. The report said drought expanded in northern Alabama and southern areas of South Carolina and North Carolina. Some improvements were made in southern Georgia, where moderate drought was removed and some abnormally dry conditions were eliminated. Severe and extreme drought expanded over west Texas last week, as those areas that missed out on rain and saw warmer-than-normal temperatures saw drought expand and intensify. Beneficial rains have fallen in central and eastern North Carolina this week, as well as south-central Georgia. The 6-10 and 8-14 day forecasts call for above normal rainfall across the US cotton belt, with normal to above normal temperatures.

SUGAR

October sugar eased back yesterday and overnight after the UNICA report showed Brazilian Center-South sugar production still coming in strong despite concerns that dry conditions would pull yields down. The report showed sugar production at 3.25 million tons in the second half of June, up 20% from a 2.70 million a  year ago and up from 3.12 million during the first half of the month. This was the strongest period so far this season, and it brought total production since the marketing year began on April 1 to 14.2 million tons, up 15.7% from last year. Second-half June cane crushing was 48.8 million tons, up 13.0% from last year but not as high as last period, which was 50.0 million. Cumulative crush has reached to 238.4 million tons, up 13.3% from year-ago. Crush and sugar production were slightly below market expectations calling for 49.0 million tons crushed and 3.27 million tons produced. Cane allocated to sugar production for the period came in at 49.9% versus expectations for 50.4%. Cane productivity was 139.9 kilograms per ton in the second half of June, up 5% from a year ago, which was why sugar production managed to increase this period when cane crush was down.

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