Buyback Boosts Cocoa but Risks Ahead

COCOA

While the cocoa market has managed to grind higher over the last five trading sessions and the buying took place on a notable increase in trading volume, it appears the trade currently sees cocoa as undervalued. Clearly, the upward track will see headwinds from deteriorating global economic sentiment and the potential for Dollar strength. However, the Ivory Coast cocoa regulator has announced a buyback of 23,830 metric tons of cocoa beans to alleviate a severe shortage of domestic inventories and while that provides near term support from a lock up of supply that action will facilitate selling and delivery of Ivory Coast beans down the road.

COTTON

With another higher high for the move and the highest trade in cotton since June 2024, the cotton market has become the “leader” of the soft commodity markets. It goes without saying that cotton has been a perennial bear market leader in the soft markets for years but both supply and demand fundamentals have clearly shifted in favor of the bull camp. In fact, China has raised its April 2025/2026 cotton consumption by 200,000 metric tons to 7.8 million metric tons. With the upward revision in Chinese demand (consumption looking to reach a three year high) and with nearby cotton prices generally posting massively deflated pricing for most of the last 10 years, it certainly feels as if the fundamental condition in cotton has seen its foundation shift from patently bearish to mostly bullish. Looking ahead, the fear of US production losses from drought continues to dominate over higher global production predictions from the USDA. In fact, the latest US drought monitor shows significant dryness below the southern state lines of Kansas, Missouri, Illinois, Kentucky and Virginia. It should be noted that Arkansas has extreme drought covering 70% of the state’s area with exceptional drought present in nearly 5% of the state.

SUGAR

Just as cotton has become the leader of the soft commodity markets, the sugar market now looks to be the most vulnerable to further price declines. Clearly, excess supply continues to dominate sugar with large Asian production expectations overtaking slack demand in that region. Along those lines the Chinese agriculture Ministry left their 2025/2026 sugar consumption unchanged at 15.7 million tons compared to 15.5 million tons in the 2023/2024 crop year. Weakness in sugar is particularly surprising in the face of the explosion in energy prices as extreme global gasoline supply tightness should explode the crush of sugar for high-grade ethanol blends. In fact, Brazil announced it will raise its ethanol mix in gasoline by 32% by the end of June and we suspect exploding global gasoline pump prices will bring about a substantial rise in consumption of sugar for global ethanol production.

COFFEE

With a 4th straight day of higher highs, a clear pattern of increased trading volume and the regaining of the 50-day moving average last week, the path of least resistance is up in coffee. The market should draft additional support from production concerns in Columbia from significant rainfall which apparently reduced March production by a whopping 29%. According to the National Federation of Coffee Growers Colombian coffee production last month was only 754,060 kg bags relative to March 2025 production of 1.06 million bags. However, the threat against Colombian coffee production is not a recent phenomenon with a downtrend in monthly production seen over the last year. Historically, Colombia has a 14 million bag annual production capacity, and a continuation of excess rain is not only lowering total output, but it is also slashing quality. An offset to the bullish Colombian news is an 17.3% increase in Ugandan coffee exports in February especially since that increase in exports was driven by higher production. Unfortunately for the bull camp, Western coffee price gains are being held back by ongoing weakness in coffee prices in Vietnam which are reportedly the result of slack demand in Asia.

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