Dec Cotton Fell Despite Acreage Data

COCOA

September Cocoa is a little lower this morning but inside Friday’s range. Recent improved rainfall in west Africa has pressured the market over the past couple of weeks, to the point where it is approaching the May low, which was roughly the 50% mark of the contracts entire move. More rain has been added to Ivory Coast over the next 10 days which improves the outlook for the late mid-crop and upcoming main crop. However, near term supplies are tight, and until cocoa arrivals start to reflect larger production, the market may find it difficult to press too far down. The breakout rally in the euro today puts European grinders in a better position to buy cocoa. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 3,809 contracts of cocoa for the week ending June 25, reducing their net long to 21,866. The net long is well below the peak of 79,541 from last September and is far from overbought. At roughly 135,000 contracts, open interest has fallen to its lowest level since November 2010.

COFFEE

September Coffee’s sideway pattern has extended into a second month. The market just barely traded to a new contract high in April on concerns on extremely tight robusta supplies in Vietnam and Indonesia. There is also uncertainty how Brazil’s crop will turn out after the hot and dry conditions earlier this year. Their current dry pattern is allowing harvest to proceed at a rapid pace. As of last Tuesday the arabica crop was 42% harvested versus a five-year average of 37% for that point in the season. The Brazilian real was under pressure last week, falling to its lowest level in two and a half years on Friday, which puts additional pressure on growers to market their product for export. On Friday, Indonesia reported that in Robusta shipments totaled 6,265.5 metric tons in May, up from 3,946.1 in April but 54% below the previous year. Cumulative shipments for January-May have reached 21,743 tons, down 62% from the same period last year. Vietnam exported 85,000 tons in June, down 40% from a year ago. Their cumulative exports for January-June have reached 902,000 tons, down 11% from the same period last year. ICE arabica stocks fell for the third straight day on Friday, down 790 bags at 807,394, which was their lowest since June 12. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 3,485 contracts of coffee for the week ending June 25, increasing their net long to 64,120. The net long is in the upper end of the historic range, which leaves the market vulnerable to heavy selling on breaks.

COTTON

December Cotton fell on Friday despite the planted acreage number coming in lower than expected. It was still up from March intentions and above last year, and it puts US ending stocks on a path to reach their highest level in five years . However, plantings do not a season make, and the trade can now switch focus to the weather. The US Drought Monitor showed approximately 16% of US cotton production was within an area experiencing drought as of last Tuesday, which was up from 9% the previous week and the highest it had been since February 13. Drought areas were spread around small but intensive cotton growing areas in the Delta, west Texas, and Georgia, and the Carolinas. This suggests that we could see a drop in conditions in this afternoon’s Crop Progress report. In last week’s report, 56% of the US crop was rated good/excellent versus 54% the previous week and 49% a year ago and the 10-year average. The weather leans favorable ahead. The 1-5-day forecast shows rains in west Texas, the Delta and much of the southeast. The 6-10 and 8-14-day forecast show above normal temperatures but above normal chances of rain as well. The question in whether there will be enough rain to counter the evaporation from the heat.

The USDA US Acreage report on Friday put US plantings for 2023/24 at 11.7 million acres, which was below the average expectation of 10.8 million and near the low end of the expected range of 10.5-11.2 million. This was up 10.673 million in the March intentions report and 10.23 million in 2023. If we leave all other elements of the US balance sheet unchanged (harvested %, yield, demand), this puts 2024/25 ending stocks at 5.7 million bales (38% stocks/use) versus 4.1 million in the June WASDE report (27.5% stocks/use) and 2.85 million for 2023/24 (20.9%). This would be the highest since 2019/20, when ending stocks reached 7.25 million and stocks/use was 46.4%.

SUGAR

The Unica Brazil sugar production report on Friday came in above expectations, but the market quickly discounted any bearish implications.

The report showed Center South sugar production for the first half of June at 3.12 million metric tons, up 21.9% from the same period last year and well ahead of an average pre-report expectation of 2.92 million. The previous report showed second-half May production at 2.7 million tons for the key Center-South region, down 7.7% from last year. Cane crushing came in at 48.998 million tons, up 20.5% from last year. Cumulative sugar production since the season began in April has reached 10.950 million tons, up 14.4% from this point last year. However, the sugar content on the sugarcane is running at 125.38 kilograms/ton so far this year, which is  down 1.34% from 124.08/ton last year, and this has raised concerns about the crop’s development. The dry weather the region experienced earlier this year is expected to eventually pull yields down.

Center west and center south Brazil are expected to remain dry over the next ten days. India recorded 11% below normal rainfall in June, due to the slow advancement of the monsoon, but conditions have improved, and the India Meteorological Department is expecting the monsoon to cover the entire nation ahead of the normal schedule. Forecasts call for abundant rain in interior northern parts of the nation in the next ten days with lighter than usual rain occurs in other areas.

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