Strong USD Pressures Coffee Futures

COFFEE

With coffee prices showing corrective action over the last 36 hours, it appears there is a broad-based wave of corrective action taking place as if a macroeconomic letdown is underway. In fact, significant declines in global equities from the deflation of the hype toward AI could be indirectly reducing demand expectations for physical commodities. It is also likely that recent explosive gains in the dollar has caught cocoa and coffee prices at overvalued levels and in need of corrective balancing. However, bullish sentiment for coffee remains in play with the trade seeing very lofty third quarter price projections this week and excess rain in Brazil and Vietnam likely to produce fear of lost production.

COCOA

September cocoa this morning has fell back from yesterday’s upside extension as if a measure of corrective action is needed. With the fear of loss production from El Niño clearly the backbone of the $600 June rally, seeing heavy rains in the Ivory Coast and Ghana temporarily tempers wild eyed El Nino speculation. However, excess rain in the Ivory Coast and Ghana has prompted short-term production concerns in the region and could be seen as a psychological blow to the long term fear that entrenched dryness will be the cause of this year’s production losses. In fact, early in El Niño cycles there can be substantial rainfall in several key production areas which creates doubt in the minds of those speculators unfamiliar with the particulars of the El Niño weather phenomenon.

SUGAR

Even though sugar prices have rebounded this week, the market should be limited next week as the heat wave in Europe looks to moderate and southeast Asia is expected to see heavy rains in the Vietnam central highlands. While increased rains in Vietnam and Brazil will dent long-term bullish psychological speculation in the El Niño story, the bull camp could end up benefiting if excess rains foster talk of damage to production. In fact, ongoing heavy rain in Brazil is likely to extend that threat to supply which surfaced earlier this week.

COTTON

With a 10 day low in cotton the corrective track looks to extend especially with outside market influences almost universally bearish. In our opinion, the cotton trade is moving to extract the premium injected into prices off ideas that the US crop would be smaller especially with the USDA report scheduled for release on June 30^th expected to dash that theme. As indicated yesterday, the average trade estimate for the report next week calls for 9.636 million acres with a range of estimates of 9.4/9.9 million. The trade expectation for acreage is above the previous USDA reading and above the 2025 level. Fortunately for the bull camp the export sales report shows ongoing positive demand with cumulative sales this year of 113.7% running markedly above projections. The Export Sales Report showed that for the week ending June 18, net cotton sales came in at 83,864 bales for the current marketing year and 67,089 for the next marketing year for a total of 150,953. Cumulative sales have reached 113.7% of the USDA forecast for the 2025/2026 marketing year versus a 5 year average of 108.4%.

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