Mild Gain in July Cotton

COTTON

July cotton sold off in reaction to the USDA export sales report yesterday, but quickly resumed its climb off Wednesday’s 19-month low and has followed through with a mild early gain coming into this morning’s action. The steep selloff from the February contract high left little or no weather premium in the market and sellers may be getting cautious. The fact that the market managed to recover so quickly could also have emboldened the bulls. The export sales report showed US cotton export sales for the week ending May 9 came at 156,450 bales for the 2023/24 (current) marketing year and 140,603 for 2024/25 for a total of 297,053. This was down from 412,532 the previous week, but it was still the second highest since February 1. Cumulative sales for 2023/24 have reached 11.802 million bales, down from 12.632 million a year ago and the lowest for this point in the season since 2015/16. Sales have reached 102% of the USDA forecast for the marketing year versus a five-year average of 106% for this point in the season. The weekly US Drought Monitor showed approximately 6% of US cotton production was within an area experiencing drought as of May 14, down from 8% the previous week, 37% a year ago, and 56% two years ago. This should put the crop in a strong position to start.

COCOA

Unless there is a positive turnaround in global risk sentiment, cocoa is likely to finish the week on a downbeat note. July cocoa finished lower yesterday and continues to trade inside the range established Monday. The May London cocoa contract had 53,000 tonnes delivered, which was smaller than last year’s comparable delivery. It also indicates that European near-term supply may not be as tight as feared and has put the cocoa market back on the defensive. The shift towards wetter weather over West African growing areas should improve the outlook for this season’s late midcrop and next season’s early main crop production. Early projections have the upcoming 2024/25 season (which starts in October) with a fourth global production deficit in a row.

COFFEE

Coffee continues to see coiling price action late this week as the market has been unable to overcome pressure from recent bearish supply news. While the market remains firmly within its mid-May consolidation zone, lukewarm global risk sentiment has coffee more vulnerable to a downside breakout than to starting a longer-term rebound. Brazilian exports over the past few months have been much greater than last year’s levels. This is due to a sizable 2023/24 Arabica crop as well as delays in shipments from their port congestion late last year. However, this export surge reflects Brazil’s ample near-term supply at the same time as their new Arabica harvest is in its early stages, and that is weighing on coffee prices. The buildup of ICE exchange coffee stocks continued Thursday with an increase of 9,429 bags as they reached their highest levels since April 2023 and nearly 200% above stock levels year to date.

SUGAR

While sugar prices received carryover support from key outside markets late this week, that has not been enough to overcome recent bearish supply developments. Unless a strong “risk on” mood can redevelop in commodity markets, sugar is likely to post a sizable weekly loss. July sugar rebounded from a 14-month low but was unable to climb out of negative territory as it finished Thursday with a moderate loss and has held within a tight early range in the early going. Brazil’s Center-South sugar production and cane crushing have come in far above last year’s totals during March and April, which continues to pressure the sugar price as that should result in large exportable supply during the rest of the second quarter.

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