Dry Weather a Growing Concern

COCOA

March Cocoa was mixed overnight after reaching a new contract high yesterday. Ivory Coast farmers interviewed by Reuters said that more rainfall is needed to boost the October-March main crop. They also said the seasonal dry Harmattan wind was blowing in central regions but that it was still mild. They said rains were below average last week in most of the region, that cocoa beans were still leaving the bush, and that they would continue to do so until January. These farmers worry that if conditions stay drier than normal, it could lower output from mid-January on. Ghana votes for a new president on December 7. Both sides are courting the cocoa farmer vote. Many farmers are dissatisfied with the current administration and with the cocoa regulator, Cocobod, which they believe is corrupt. They cite a lack of support to buy fertilizer, the slow pace of infrastructure improvements, ballooning administration costs,  and the government’s inability to fight illegal gold mining.

Farmer holding a cocoa pod.

 SUGAR

March Sugar is higher this morning following a bounce off a 2 ½ month low yesterday. Reports that Indian mills have produced just 2.79 million metric tons of sugar since the current season began on October 1, down 35% from the same period last year has reignited expectations that the Indian government may continue to limit exports. Mills in two key states, Maharashtra and Karnataka, started their operations later than usual. By the end of November, 381 mills had started crushing operations compared to 433 a year prior. According to the National Federation of Cooperative Sugar Factories Ltd. (NFCSF) India could produce 28 million tons in 2024/25, down from 31.9 million in 2023/24. The market failed to get a lift off supportive production data out of Brazil last week, but perhaps the India data is encouraging a second look. The weakness in the Brazilian real may have also encouraged more producer selling. The real stabilized yesterday but was still near all-time lows.

COFFEE

March Coffee is slightly higher this morning following a two-day collapse from near-record highs. Traders cited the overbought condition of the market. The Brazilian real collapsed last week, falling to new lows against the dollar, and this may have encouraged farmers to sell coffee. The real did stabilize yesterday, but it is still near historic lows. London robusta coffee prices also sold off sharply, giving up three weeks of gains in just three sessions. Diminished expectations for the upcoming Brazilian crop have been the main driver behind the rally,  but the market climbed too far, too fast.

COTTON

March Cotton is near unchanged this morning after a sell off yesterday that was apparently prompted by the market’s failure to push through the 100-day moving average and extend its rally off the November 19 lows. The trade was also disappointed that the market did not get a bigger lift from Friday’s export sales report, which showed sales were the second strongest since January. It may also have been pressured by a stronger dollar. Traders also cited low prices being offered by Argentina, Russia and other Black Seas producers. A sharply lower Brazilian currency did not help either, as that may make Brazilian cotton more competitive against US cotton. The buying trend is somewhat supportive. January Crude Oil is higher this morning, which could lend some support to cotton.

 

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