China Reserve Sales Pressure Cotton

COTTON

December Cotton was lower early Wednesday but moved back into positive territory as the session progressed. News on Tuesday that China will begin selling part of its state cotton reserves starting July 20 helped pressure the market, although China has not been a huge buyer of US cotton this year. As of July 2, Vietnam was the largest buyer so far for the 2025/26 marketing year at 4.039 million bales, followed by Pakistan at 1.557 million and Turkey at 1.110 million. China was seventh at 567,000. CONAB put Brazilian 2025/26 cotton production at 4.06M million tons (equivalent of 18.65 million US bales), up from a prior estimate of 3.98 million and down slightly from 4.08 million in 2024/25. In the July WASDE report, USDA put Brazilian 2025/26 production at 18.75 million bales and 2026/27 at 18.00 million. World Weather Inc. says West Texas still needs rain, especially in the dryland areas of the southwest.  Scattered showers and thunderstorms are possible this week and they may favor some of the drier areas in the south. The US cotton crop was rated 44% good/excellent as of July 12 versus 54% a year ago and a five-year average for this date at 48%. Texas was 30% G/E versus 45% a year ago and a five-year average of 35%.

COCOA

September Cocoa managed to close a gap from the lower open on Monday, but it quickly retreated and was back lower on the day as the session progressed, as if to suggest that closing the gap was all it could muster. The market had an impressive rally in recent weeks off weather concerns, first about too much rain in West Africa and then about not enough. The arrival of El Nino threatens to bring dry conditions later this year, that would hurt output for 2026/27. In the meantime, the 2025/26 mid-crop appears to be performing well. Ivory Coast arrivals are the highest in three years, though farmers there would like to see a bit more sunshine. Next up is the second-quarter grind data due to be released on July 16. A Bloomberg survey has an average expectation for European grindings to be -1.5% from a year ago, which would make it the lowest for the period since 2020. North American grindings are expected be -1% and Asia +9%. Earlier this week it was reported that Ivory Coast’s second quarter grind was +28% from a year ago, and Brazil’s was +8.6%.

COFFEE

September Coffee continues to trading in wide, choppy ranges near contract highs. The market shot up in late June off concerns about excessive rains in Brazil and then worries about El Nino bringing extremely dry weather to production areas around the world. Heavy rains in June interrupted what was expected to be a bumper harvest for Brazil, and there were reports of damage to the crop as well. Recent dry conditions have emerged, which should have allowed harvest to resume. The rally back near contract highs may have also encouraged producer selling. There is no threat of damaging cold at this time. El Nino’s arrival could have a more immediate effect on robusta production with Indonesia experiencing dry conditions and Vietnam’s rain coming up short of normal. World Weather Inc says unusually dry conditions in Indonesia are expected to continue over the next week. Vietnam rainfall is expected to be less than normal, and precipitation many areas may experience some net drying conditions. Enough light rain should fall in key production areas to prevent any area from becoming critically dry, but greater rain will be needed later this month and in August to ensure the best rain-fed production potential. Irrigated crops should develop normally.

SUGAR

October Sugar was near unchanged early Wednesday, supported by Brazil’s move to increase its ethanol mix in gasoline (which was not a surprise), but limited by global supply estimates. El Nino raises the specter of lower production next year, but the market does not seem too phased by this. Forecasts seem to be moving from a small surplus for 2026/27 to a small deficit; nothing dramatic. Brazil’s National Energy Policy Council approved temporarily raising the mandatory ethanol blend in gasoline to 32% from 30% on Tuesday. This is expected to increase the amount of cane crushed for ethanol production, which would mean less for sugar. However, the announcement was not a surprise, as plans to do so had been reported last month. The duration for the increase is 180 days, but it could be extended for another 180. Last August, Brazil increased the mix to 30% from 27%. UNICA expects a gradual advance toward a 35% blend. The French Farm Ministry left is estimate for 2026/27 sugar beet planted area unchanged at 373,000 hectares, which is -6.5% from last year. There have been no official yield or production numbers released for this year. US forecasts for sugar imports in the 2026/27 season should allow Mexico to sharply increase shipments to the US as opposed to offering it on the world market. World Weather Inc. says rainfall will continue to be limited in the northwest, central and far southern parts of India for the full week, and then it will return to the central areas. Central India still has favorable soil moisture from previous rain, but southern India is already too dry and the persistence of those conditions will further raise concern for sugarcane. There has been no announcement of when UNICA will release its update on Brazil center-south sugar production for the first half of June.

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