Energy May Pressure Sugar

SUGAR

Sugar could see some pressure from the energy sector today, with crude oil sharply lower after reaching its highest level in over a year yesterday and gasoline lower for three straight sessions. The Brazilian real also closed lower yesterday, and this puts pressure on sugar refiners to sell their product. March sugar reached a new 12 1/2 year high yesterday and closed with a strong gain, but prices eased off a bit overnight. India and Thailand are looking at lower production during the 2023/24 season, and that continues to underpin prices despite strong Brazilian production this year. India’s total rainfall since the monsoon started in June has been running 9% below average, with some key cane growing areas 15% lower. India allowed only 6 million tonnes of sugar to be exported in 2022/23 versus 11 million the previous year, and the government has said it will assess the cane crop in October to decide whether to allow exports in 2023/24. There is some suspicion that they will not allow any until April, after the national elections, to keep domestic prices down. The Indian Sugar Mills Association has estimated 2023/24 sugar production at 31.7 million tonnes versus 32.8 million in 2022/23. Dealers said mills in Brazil have been boosting white sugar exports thanks to high international prices, pushing up local prices.

COFFEE

Ideas that dry weather over Brazil’s main Arabica growing areas could disrupt the region’s flowering for the upcoming 2024/25 crop supported a rally in December coffee to its highest level since August 3 over the past week, but the market may have gotten a bit ahead of itself. At its peak yesterday, December coffee had gained 15.20 cents in four sessions, but then it sold off and closed well off the highs of the day, though still above Monday’s close. Prices were lower overnight in a narrow range. This year’s Brazilian Arabica crop is much larger than last year, but there have been concerns expressed recently over quality because many coffee beans were collected from the ground instead of being picked from trees. A negative shift in global equity markets weighed on coffee prices late Tuesday and could put additional pressure on the market today if it continues. Starbucks announced a new roasting and distribution facility in China, which bodes well for Asian and global demand. ICE exchange coffee stocks were unchanged on Tuesday with no grading taking place. They remain on-track for an eighth monthly decline in a row.

COCOA

December cocoa resumed its selloff overnight with a gap lower and a trade to its lowest level since August 30. Prior to this week, the market had rallied to all-time highs on concerns that there would be a third straight global production deficit in 2023/24, but with the main crop upon us, it is possible that harvest pressure is emerging. Extremely high prices could also pressure demand. Global risk sentiment remains sluggish in front of today’s FOMC meeting results, which could be adding to the selling pressure. The results will include quarterly projections for US inflation through 2026. Nigeria’s Cocoa Association will not provide a forecast for their 2023/24 cocoa production due to heavy rainfall and the spread of black pod disease. This news underscores current West African supply issues that have strengthened prices over the past few months. 2022/23 Ivory Coast port arrivals are well below last year’s pace with only two weeks left before the end of the season.

COTTON

December cotton is in a generally positive trend, with a poor US crop and uncertainty over Australia’s upcoming crop, but an uncertain demand outlook is limiting the upside moves. There has been some consolidation over the past week, and the next breakout could set the near-term tone. Cotton held up well yesterday in the face of a risk off mood and lower equity markets, which was impressive considering demand has been on traders’ minds. Monday’s Crop Progress report reiterated the poor condition of the US crop, especially in Texas. It also showed that 55% had bolls open, which increases the vulnerability to damage if there is a lot of rain. The 6-10-day forecast calls for normal to above normal chances of rain in Texas, normal in the Delta, and above normal in the southeast. The 8-14-day forecast turns a bit drier, which could be good for harvest. The 1-5-day forecast has heavy rain in eastern Oklahoma and Arkansas but light to no rain elsewhere. El Nino tends to bring dry conditions to Australia, and traders will be monitoring the weather there for the coming season.

Source: Admis