Brazil’s Upcoming Crop in Question

SUGAR

March Sugar is moderately lower this morning following a two-day selloff from the December highs. Brazil’s upcoming crop is in question in the wake of this year’s historic drought, but India could see a bigger crop next year after ample rains and aggressive plantings this year. However, the Indian Mills Association is estimating that in 2024/25, production will fall to 28 million metric tons, which would be below their domestic consumption of 29.6 million. In the meantime, Brazilian production appears to have peaked for the season. UNICA’s report on Brazilian production for the second half of November should be released this week. Recent rains may improve the long term outlook, but they also disrupt cane harvest. Traders have mentioned the possibility of a tight supply situation in early 2025. Citi analysts said this week cited a negative outlook for the next Brazilian crop and a tight global supply balance. Thailand’s harvest is underway, and it has been expected to see a sharp recovery this year, but that may not be enough to overcome a slowdown in Brazilian output. The USDA report yesterday put US 2024/25 sugar production at 9.226 million short tons, down from 9.276 million in November and down from 9.305 million in 2023/24. However, imports from Mexico increased to 621,000 short tons from 395,000 previously. Ending stocks were revised to 1.696 million from 1.464 million in November, which is down from 2.099 million in 2023/24.

COTTON

March Cotton prices are lower for the seventh straight session this morning and are within striking distance of the November low. The USDA report was bearish against expectations, with US production coming in higher instead of lower and above the upper end of the expected range. Average yield was increased. Demand was left unchanged, leaving ending stocks higher instead of lower. World production and ending stocks also increased from last month and  were higher than expected. This increases the US stocks/use ratio for 2024/25 to 33.6% from 32.8% last month. This is up from 23.2% last year and above the 10-year average of 26.5%. The increase in US production coupled with the dismal demand outlook is making it hard for the market to build a bullish case.

COCOA

March Cocoa eased back from yesterday’s contract highs overnight following a sharp rally this past week off reduced expectations for the West African main crop. West Africa has had no reported rainfall over the last 24-hours. The dry trend has been a key supportive factor on the rally, as it raises concerns that production will drop sharply as the season progresses. Ivory Coast arrivals are still strong relative to a year ago, but they are starting to come off their peak levels. Cumulative arrivals are just above the five-year average. ICE exchange stocks fell 22,915 bags yesterday to 1.487 million, still the lowest since December 2023.

COFFEE

NY Coffee is lower this morning after reaching new all-time highs yesterday. The latest leg of the rally has been driven by concerns that Brazil’s 2025 crop will be small due to damage done by drought this year. This week, Volcafe cut its Brazilian production estimate. They also fretted over Brazil’s apparent inability to produce a healthy “on-cycle” arabica crop and forecasted a fifth consecutive global production deficit. Expana, a leading price reporting agency and research firm, expects total 2025/26 Brazilian production to be up slightly from last year at just under 70 million bags, but they cut the arabica forecast by 2 million bags to 43 million. Another analytical firm, Wateridge, expects a global surplus of 7.5 million bags in 2025/26, as they see high prices lowering demand. In a report yesterday, the USDA attaché in Hanoi put Vietnam’s 2024/25 production at 30.1 million bags, up from the USDA official forecast of 29.0 million from October. The attaché also revised 2023/24 production down to 27.5 million from 29.1 million previously. Of the expected 30.1 million this year, robusta would constitute 29.0 million bags and arabica 1,100 bags. Total exports (bean, roast-ground, and soluble) are forecast at 26.92 million, up from 26.50 million previously and 24.40 million in 2023/24.

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