Down Off A Bullish Unica Report?

SUGAR

The sugar market failed to rally on Friday off what should have been viewed as a bullish Unica report, and the sellers were emboldened overnight after Czarnikow reported that it expects a 5.5 million-metric ton sugar surplus in 2024/25, with global production at 186.5 million tons. The deficit was 0.9 million narrower than the previous estimate but was still the second highest on record. They expect record output from Brazil and rebounds for EU and Thailand. The Unica report on Friday showed Brazil Center-South sugar production at 2.700 million metric tons in the second half of May, down 7.7% from last year and a worse than expectations calling for a 0.8% decline. Cane harvest was down 3.36% from last year at 46.771 million tons. Sugar’s share of processing was 48.3% versus 49.8% expected and unchanged from last month. However, cumulative production for the 2024/25 marketing year (which began on April 1) has reached 7.837 million tons, up 11.8% from a year ago. Cane harvest has reached 140.742 million tons, up 11.2%. Ethanol production has reached 6.466 billion liters, up 10.4%.  Dry weather is expected to lower yields going forward, but sugar production is seeing more competition from ethanol. The Brazilian real fell to its lowest level since January last week, which puts pressure on growers to market their product for export. India’s monsoon has produced 20% less than normal rainfall so far this season, which is starting to become worrisome to growers after expectations for above average rainfall this year. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 12,411 contracts of sugar for the week ending June 11, reducing their net short to 37,325. This is a modest short position when compared to the record net short of 213,000 from 2019, which means the market is far from oversold.

COCOA

Cocoa market bulls were clearly disappointed last week when the market went up and filled a gap from April on Thursday but did not follow through and instead sold off hard on Friday. West Africa is looking at above normal rainfall over the next 15 days, which is an improvement, but it has a ways to go to get back to normal soil moisture levels, which are the low end of the five-year range. The bulls may have also been disappointed that the market did not find much support from news on Friday that Ivory Coast’s cocoa regulator, the Coffee and Cocoa Council (CCC) has suspended the purchase and export of cocoa bean for the month of June in order to retain sufficient stocks for domestic grinders. Grinders say they need about 250,000 metric tons during the mid-crop in order to guarantee a satisfactory supply. Ivory Coast’s mid-crop is expected to come in around 450,000-500,000 tons this year versus 555,000 last year. As of last week, arrivals at Ivory Coast ports were down 28% from last year. Last week, it was reported that Ghana’s COCOBOD was looking to roll 350,000 metric tons of pre-sold cocoa to the 2024/25 season, up from a previous expectation of 250,000. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 5,276 contracts of cocoa for the week ending June 11, increasing their net long to 26,410. This is far short of their record net long of 79,541 from last September, which leaves plenty of fuel if the funds become interested in buying.

COFFEE

It may take some sort surprise from the Brazilian harvest to get September Coffee to break out of tis three-week consolidation pattern. The expected arrival of La Niña in July-September could bring less moisture and colder than normal temperatures to coffee growing areas of Brazil, increasing the chance of frost, but it could also bring wetter than normal conditions to Southeast Asia, which would benefit Vietnam. Uganda’s coffee (mostly robusta) production for 2024/25 is projected at 6.9 million bags, up 40,000 from 2023/24, according to a report from the USDA. They credited good production practices, targeted interventions to combat pest and disease, and the maturation of new high-yielding seedlings planted in recent years. Their arabica production is expected to reach 1.005 million bags, with robusta at 5.895 million. ICE exchange stocks reached 815,031 bags on Friday, up 6,964 from Thursday and up 15,993 for the week. The Brazilian real fell to its lowest level since January last week, which puts pressure on growers/roasters to market their product for export. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 373 contracts of coffee for the week ending June 11, reducing their net long to 61,650. This is not too far below the record net long of 78,811 from April, and it leaves the market vulnerable to heavy selling if support levels are taken out.

COTTON

December Cotton broke overnight to its lowest level since October, 2022. The market is technically oversold, stochastics are close to crossing positive from a low level, and there is some divergence showing up with momentum indicators, but is difficult to make a bullish fundamental case to make given the relatively strong crop conditions and decent soil moisture. This afternoon’s Crop Progress report may also capture traders’ focus. Last week’s report showed a 9% decline in conditions in Texas and 5% for the nation overall but they were still running well ahead of last year and the 10-year average. A potential tropical system forming over the Gulf of Mexico could bring heavy rains to Texas this week, which could also be beneficial to the crop. The 6-10- and 8-14-day forecasts call for normal or above normal rainfall across the US cotton belt, with above normal temperatures across all but southern Texas, near the border with Mexico. The rally in the dollar to its highest level since May 1 last week makes US cotton less competitive on the global market. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 11,827 contracts of cotton for the week ending June 11, increasing their net short to 35,735. This is their largest net short since September 2019 and not too far from the record -45,230 from July of that year. The heavy selling shows momentum is behind the shorts, which is short-term bearish. However the net short approaching an extreme level leaves the market vulnerable to short covering if resistance levels are taken out.

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