Big Concern Over Brazilian Drought

COCOA

December Cocoa is near unchanged this morning and is holding the mild uptrend of the past two weeks. World Weather Service says southern Ivory Coast dryness may continue for at least another week while some improvement is expected to occur in other West Africa production areas. There were reports last week of a big expansion in South African crops in response to the higher prices, but keep in mind it takes 2-3 years for trees to become productive. StoneX says Ecuador’s production could reach 500,000 metric tons in 2024/25 from 430,000 in 2023/24, which could put them at number-two worldwide. In general, weather conditions in West Africa crop have been good this year, and the crop is expected to be much better than last year, but the global market could still struggle to move into a surplus position. The trade will be watching Ivory Coast arrivals in the next few weeks for clues. Farmers may be reluctant to sell until next month, as the hope for an increased in the official farmgate prices. Ghana lost more than a third of its 2023/24 cocoa output to smuggling, as low prices an payment delays pushed some farmers to sell to increasingly sophisticated trafficking rings. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 676 contracts of cocoa for the week ending September 10, reducing their net long to 26,425. This is down from almost 80,000 last September and reflects the lower participation by specs in this market. The US Climate Prediction Center has given a 71% chance that La Niña will emerge in the September-November timeframe. It is expected to persist through January-March 2025, but it is also expected to be on the mild side.

COFFEE

December Coffee extended Friday’s rally overnight to another a new contract high, as the ongoing drought in Brazil has raised concerns about their crops. Coffee agronomist Jonas Ferraresso, advisor to coffee farms in Sao Paulo and Minas Gerais told Reuters on Friday that the crops are very stressed and in very poor condition. He said that even if rains return in October and usher in the flowering phase, trees will hardly have the energy to convert those flowers into fruits. World Weather Service says the main coffee areas in Brazil continue to experience very little precipitation and warm temperatures, with no flowering expected. The earliest any significant rain could arrive would be in the last days of September and/or early October, and there is not much evidence of that in recent computer forecast models. La Niña could bring wetter than normal weather to the Central Highlands and  drier than normal conditions to Southeast coffee regions in late 2024/early 2025, but the question is how intense this event will be. So far, the CPC has suggested that this one will be on the mild side, but that is not preventing a certain level of anxiety. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 427 contracts of coffee for the week ending September 10, increasing their net long to 56,627.

COTTON

December Cotton reversed higher overnight following a minor setback on Friday, and it traded to its highest level since September 3. The market has benefited from the stronger than expected USDA crop report last week as well as concerns about possible damage from last week’s heavy rains in the Delta. This afternoon’s Crop Progress report could provide some clues as to the damage. World Weather Service say drier weather will return to the U.S. Delta this week, which  should help crops improve. Too much rain may have also occurred during the weekend in a parts of Alabama, southwestern Georgia and northwestern Florida, but situation should improve this week. Rains coming to West Texas in the next weekend being could be good for new boll development. Good harvest weather continued in the Texas Coastal Bend, and the Blacklands crop was still rated favorably during the weekend. The long awaited September FOMC meeting concludes on Wednesday and with it the answer to the question of the size of the rate cut. The higher than expected Core CPI number last week shifted expectations to a 25 basis-point cut from 50 earlier. The dollar is lower this morning, which also lend support to cotton on ideas it could make US exports more attractive on the global market. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 6,826 contracts of cotton for the week ending September 10, increasing their net short to 49,492. This was before big rallies on Wednesday and Thursday.

SUGAR

Last week’s  UNICA data was supportive, but the market only saw a brief, one-day rally off the news. The report showed Center-South sugar production for the second half of August at 3.258 million metric tons, down 6% from the same period last year. Cumulative sugar production for 2024/25 is up 3.9% from a year ago. The trade is expecting Brazilian output to eventually fall behind last year’s pace due to the extreme heat and dry conditions earlier this year. Thailand’s crop appears strong, which could help offset Brazil’s lower production, which is the opposite of last year’s setup. India’s monsoon production was better than last year, which should bode well for their sugar production, but they appear unlikely to resume exports because of the government’s desire to support the ethanol industry. The US CPC has given a 71% chance for La Nina to arrive in September-November timeframe and last through January-March 2025, which could mean wet conditions and cool temps for Center-South Brazil. However, the event is expected to be on the mild side, which would mitigate its impact. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 14,051 contracts of sugar for the week ending September 10, reducing their net long to 29,951.

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