Cocoa Prices Moderately Higher Early

COCOA

Cocoa prices were moderately higher early this morning after what would appear to be a bullish European cocoa grindings number 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. It was also counter to expectations that high cocoa prices would pull grindings down from last year. One explanation is that chocolate manufacturers were using stockpiles that they had secured prior to prices reaching their highest levels. Before January, nearby prices had topped off at $4500, and it was during the February-April timeframe that they rallied from $5,000 to over $12,000. Germany’s grind came in at 101,651 tons, up 7.8% from last year. Their first-quarter grind was up 3.9% from last year. Is the grind news bearish or bullish? On the bullish side, it suggests demand may be more resilient than expected, but on the bearish side it may mean that supplies are not as tight as feared. Barry Callebaut, the world’s largest chocolate maker reported a decline in sales volume in the third quarter of its fiscal year, which could be an indication that high prices are affecting demand. The CEO referred to problems of “supply turbulence.” However they did report cocoa powder demand had remained robust. Next up are the North American and Asian grind stats, which are due out on July 18. In the first quarter, North America’s was up 3.6% and Asia’s was down 0.2%.

COFFEE

After a one-day pause, September NY (arabica) Coffee resumed its uptrend overnight to reach another new contract high. London (robusta) Coffee traded to a new all-time high. The president of the Brazilian coffee exporting group Cecafe said yesterday that the Brazil’s 2024 coffee crop would be smaller than expected for both the arabica and robusta crops. They look for arabica production to be 5% smaller than expected and robusta production about 10% smaller. This is not a surprise, as persistent dry weather in key growing regions have already raised concerns. There have been reports of smaller bean sizes from the arabica harvest, and there were hints earlier this week that the robusta crop would be revised lower. The harvest has been proceeding at a faster pace than normal due to the dry weather. Little rain is in sight for the key arabica region of Minas Gerais, but there is little threat of frost. News this week that Vietnam’s exports so far in 2024 were down 11.4% from last year sparked the breakout rally. Dealers in Vietnam report very little inventory in their domestic market, and cash trading has reportedly come to a halt. Recent rainfall has improved the outlook for the upcoming crop, but that won’t be available until harvest in October or November. ICE arabica stocks rose by 5,309 bags yesterday to 808,628, their first increase since July 2. However coffee pending grading fell by 9,651 bags to 18,113, the lowest in at least two months.

COTTON

December Cotton was higher overnight after managing to hold critical support at 70.00 yesterday. The market showed a reluctance to push lower ahead of the monthly USDA supply/demand report that is due out tomorrow. A Bloomberg survey of trader expectations for the report shows an average for US production at 17.16 million bales, with a range of 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 be 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 ending stocks are expected at 84.28 million bales (range 83.3-85.00) versus 83.49 in March. Today we have the weekly export sales report. The market could use a strong report for a change, but we are not holding our breath. Last week’s report showed net sales of 115,352 bales for the 2023/24 (current) marketing year and 56,897 for 2024/25 for a total of 172,249 for the week ending June 27. This was up from 158,190 the previous week but below the four week average of 251,567. US weather still looks pretty decent. The 6-10-day forecast has much above normal temperatures in the southeastern US, with above normal temps in the Delta and Texas and the 8-14 day is somewhat cooler, but both forecasts show above normal chances of rain.

SUGAR

October Sugar was lower overnight and came close to taking out yesterday’s two week low. Heavy rains this week in Center-South Brazil could improve Brazil’s crop prospects later this season. Production has gotten off to a strong start due to dry weather there, but there had been concerns that this would ultimately lead to smaller than expected output overall. As of June 16, Center South production was running 14% ahead of  a year ago for the marketing year that began in April. Rainfall in Thailand has eased concerns about their upcoming crop, and India’s monsoon rains have been plentiful. Lower production from those two countries contributed to tight supply last year. China is also seeing beneficial rain. Russian sugar beet test  this week showed an average root weight of 119 grams versus 100 grams a year ago, and French sugar beet planted area was estimated at 411,000 hectares versus 398,000 estimated last month and 379,000 a year ago.

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