Beneficial Rains in West Texas

COTTON

July Cotton saw a modest rally yesterday on a slight improvement in export sales but not enough to even approach the high of the three-week consolidation. West Texas is due to receive beneficial rains over the next ten days, which could greatly improve crop and field conditions. According to yesterday’s weekly US Drought Monitor, heavy rains over the past week (though Tuesday) had led to a 1-category improvement in central and southern Texas. It also showed only 6% of US production was within an area experiencing drought as of June 3, down from 7% the previous week and the same as a year ago. The Delta is too wet and is expected to see more rain, which could lead to further planting delays. Yesterday’s export sales report showed net sales 148,769 for the week ending May 29 (old and new crops combined), which was an improvement over the previous week. Shipments totaled 316,134 bales last week, the highest since May 8. Cumulative sales for 2024/25 are the lowest in in nine years, but cumulative shipments have climbed above year ago. Cumulative new crop sales are the lowest in at least 12 years. A positive spin on the Trump-Xi talks lends support, as does a generally bullish bias in the crude oil market this week. If today’s jobs report is negative and sparks a selloff in the dollar, this could support cotton to some degree.

SUGAR

July Sugar is lower this morning but so far has managed to just barely hold yesterday’s 4 ½ month low. The market is approaching the January 21 low of 14.43, but it has also reached oversold levels that could leave it vulnerable to short covering. News that Brazil exported 2.257 million metric tons of sugar in May versus 2.808 million a year ago should not be a big surprise given the slow start to Brazilian sugar output this season, which was blamed on wet conditions in in late April and early May. The drier conditions that have since emerged could show up in next week’s UNICA report on Brazil Center-South production for the second half of May. The market has been under pressure for the past few weeks from the early arrival of the Indian monsoon and timely arrivals elsewhere in southeast Asia, which are viewed as good for the cane crops in India and Thailand. The Indian monsoon stalled this week but is expected to resume next week. Indonesian cane growing areas have been drying down this week and are expected to continue to do so over the next week to ten days, according to World Weather Service. This could eventually stress the cane crop there as seasonal dryness becomes more significant later this month. The European Union could allow a higher quota for Ukrainian sugar imports this year. They are currently in talks with Ukraine for new agreement that would be between the current levels and the temporary exemptions that were granted after Russia’s 2022 invasion. Those exemptions sparked protests from European farmers alarmed about a flood of agricultural imports from Ukraine.  A stronger bias in crude oil this week may offer some support to sugar, but that is undermined by a cut in gasoline prices from Brazil’s Petrobas this week.

COCOA

July Cocoa is sharply higher this morning, extending its recent recovery rally. A report overnight that the Ivory Coast’s cocoa regulator, the Coffee and Cocoa Council (CCC), has already sold between 650,000 and 700,000 metric tons of cocoa export contracts for 2025/26 indicated that buyers are aggressively contracting for cocoa on fears that next year’s crop will be short. The CCC has stated that plans to limit its contract sales to 1.3 million tons this year versus an average of 1.7 million tons of contracts for a normal season. The slow start to the rainy season this year has slowed pod development. Recent rain improvements have been beneficial for the crop but for later in the season. Ivory Coast port arrivals have been sluggish as well. In the meantime, World Weather Service continues to report a good mix of rain for West Africa that is considered beneficial for the crop.

COFFEE

July NY Coffee gapped higher overnight and extended its recover rally off Tuesday’s low. The market has traded right up to the 50-day and 100-day moving averages around 370.60 and 370.40, which could act as key resistance levels today. July London Coffee was also higher. Both markets had gotten technically oversold this week following steep declines on what appeared to be pressure from the advancing robusta harvests in Brazil and Indonesia, which left them vulnerable to a rally. A report that Brazil exported just 170,238 metric tons of green coffee in May, down from 243,720 a year ago, may have raised concerns that the export pace was not as strong as the market action had suggested. Colombia’s National Coffee Federation reported that nation produced 819,000 bags of washed arabica coffee in May, up from 703,000 in April but down 27% from 1.120 million in April 2024. This is the biggest year-over-year decline since October 2022. The 12-month total has fallen to 14.653 million bags, down from 14.954 million in April and the lowest since January.

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