USD Selloff + Brazilian Currency Rally Supports Cotton

COTTON

March Cotton has lifted well clear of the December and January “twin” lows with the early trade today temporarily posting prices above the 21 day moving average at 68.92. The selloff in the Dollar combined with a rally in the Brazilian currency provides significant support to the cotton market as it will make US cotton more attractive that Brazilian cotton in the global export marketplace. Also with energy prices reaching the highest level since early October yesterday that should provide carryover support to cotton as that will result in higher prices for polyester and nylon.

COFFEE 

March coffee has continued to add to consolidation low support situated at and just above 316.80. As in other markets, we suspect the meandering of the last two weeks will end as trading returns to normal. Therefore, this week’s action could offer trend signals with the coffee charts more bullish than bearish and fundamentals more bullish than bearish. However, prices have held over the past 48 hours despite Brazil’s key south Minas Gerais growing region seeing daily rainfall in the forecast through late next week. The Brazilian currency rallied to a 2-week high against the Dollar yesterday, which should ease pressure on Brazilian producers to market their coffee to foreign customers and gave a boost to domestic coffee prices. Brazil’s December coffee exports came in at 201,908 tonnes (3.365 million bags) which compares to 243,559 tonnes (4.059 million bags) in December 2023. Vietnam’s December coffee exports were 126,000 tonnes (2.1 million bags) which were down 39% from last year, and that put their 2024 coffee export total at 1.3 million tonnes (21.667 million bags) which was down 17% from their 2023 export total.

COCOA

The press continues to attempt to shape mostly normal seasonal weather patterns in West Africa into a dryness problem with the focus increasingly shifting toward the upcoming mid-crop cycle. In the near term, hot dry wind concerns have entrenched, with recent rain only a temporary beneficial impact with growers pausing harvest in Nigeria and portions of the Ivory Coast. With Ivory Coast port arrivals running below year-ago levels that should keep the bull camp in control. Dry conditions have increased the risk of brushfires in a partial confirmation of the adverse conditions in production areas. The latest weekly Ivory Coast port arrivals total came in above the comparable period last year, and their full-season total is now 27% ahead of last season’s pace as opposed to the 35% above the prior year’s arrival totals late last year. However, with the main-crop harvest winding down soon, weekly port arrival totals should begin to decline in early February. With primary producer Ivory Coast arrivals ahead of year ago levels, every port arrivals report will be especially important. West African growing areas continue to see hot and dry conditions and that will have a negative impact on their upcoming mid-crop production, and that has underpinned cocoa prices above $11,000. It should be noted that Ivory Coast and Ghana are expected to face mostly dry with temperatures near to above normal toward the end of this week. If there is an area that is seeing tangible relief it is in East Africa (Ethiopia, Kenya, Tanzania) which means smaller production areas are seeing relief.

SUGAR

While the four week old sideways consolidation pattern appears to have provided sugar with a potential bottoming signal following the September through the end of December downtrend, hedge funds shifted from net long to a net short in last week’s positioning report with the net short reaching the most bearish level in more than five years. In retrospect, last week’s rally was viewed by many as an opportunity to reenter the short side. In fact, Brazil’s main cane-growing region will have daily rainfall through Thursday, and then on Sunday through Thursday next week. This precipitation should benefit Brazil’s Center-South 2025/26 cane crop, and that weighed on sugar prices. Brazil’s December sugar exports came in at 2.836 million tonnes, which compares to 3.792 million tonnes in December 2023. It seems as if bearish sentiment has resurfaced in several trader categories (as per COT report distinctions) and that in turn has prompted selling on rallies.

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