Softs Report 10/10/19
Jack Scoville of The PRICE Futures Group - InsideFutures.com - Thu Oct 10, 10:15AM CDT

COTTON
General Comments: Cotton was higher on hopes for more agricultural trade with China. China made an offer to buy a lot of US ag goods if the US would accept a reduced trade deal. The USDA crop progress reports showed good progress, but the condition report was much more mixed as some crops got better and some got worse. This trend has been a feature of the market all year as the Texas Panhandle and nearby areas have been very hot and dry for a big part of the growing season. Crops in the southeast have seen perhaps too much rain and much cooler weather. These trends have changed in the last couple of weeks and now Texas if getting a little rain while the Southeast has seen record heat and a drought has started to develop. The weekly report showed increased stress in the southeast last week. Some rains were seen in the Southeast over the weekend and temperatures have now moderated. The export demand remains weak. World demand has been weak in part due to the US-China tensions and fears of a recession or at least a global economic slowdown are keeping buyers away. World prices are weak.
Overnight News: The Delta should see mostly dry weather, but some showers on Friday, and Southeast should see mostly dry weather. Temperatures should be near to above normal. Texas will have mostly dry conditions. Temperatures will be mostly below normal. The USDA average price is now 58.97 ct/lb. ICE said that certified stocks are now 10,523 bales, from 11,136 bales yesterday. ICE said that 0 notices were posted for delivery against October contracts and that total deliveries for the month are now 13 contracts. USDA said that net weekly Upland Cotton export sales were 188,800 bales this year and -5,300 bales next year. Net Pima sales were 9,600 bales this year and 0 bales next year.
Chart Trends: Trends in Cotton are mixed. Support is at 6070, 6010, and 5970 December, with resistance of 6240, 6290, and 6340 December.

FCOJ
General Comments: FCOJ was lower after breaking some chart support. Trends remain up on the daily charts. There are no threats out in the ocean right now but the state of Florida has been dry. Many are expecting increased production estimates from Florida on Thursday when USDA releases its next production reports but the drier weather could mean reduced fruit sizes and less than expected production. Chart patterns are mixed. Inventories in Florida are still 29% above a year ago. Fruit for the next crop is developing and harvest will be starting soon. Crop conditions are called good as irrigation is being used. The dry season there seems to be starting now. Rains are reported in Brazil to start flowering for the next crop.
Overnight News: Florida should get scattered showers this week and drier weather this weekend. Temperatures will average near to above normal. Brazil should get scattered showers this week and drier weather this weekend and above normal temperatures.
Chart Trends: Trends in FCOJ are up with objectives of 104.00 and 105.00 November. Support is at 98.00, 96.00, and 93.00 September, with resistance at 105.00, 106.00, and 108.00 September.

COFFEE
General Comments: New York and London both closed slightly lower on reports of good rains in recent days in Brazil. It should now start to turn drier. Flowering is reported to be very good and there are ideas of a big production coming next year. However, there was some extreme cold and drought conditions earlier in the year that might have stressed trees and could hurt production potential for this year despite the good weather now. Trends are down in the markets and the funds are selling. The weather is also reported to be good in Vietnam. Vietnam crops are thought to be big despite some uneven growing conditions this year. It has been warm and dry at times, then the growing areas have seen some very heavy rains. The harvest there will be underway soon. Demand has been increasing over the last few weeks. Differentials have been stable. Certified stocks in New York keep dropping and suggest that futures remain underpriced when compared to cash prices. Certified stocks are now at one year lows.
Overnight News: ICE certified stocks are lower today at 2.245 million bags. The ICO daily average price is now 96.18 ct/lb. Brazil will get showers this week and dry weather this weekend with above normal temperatures. Vietnam will see scattered showers in all areas.
Chart Trends: Trends in New York are down with objectives of 94.00, 93.00, and 90.00 December. Support is at 95.00, 94.00, and 91.00 December, and resistance is at 98.00, 99.00 and 100.00 December. Trends in London are down with objectives of 1220 November. Support is at 1250, 1230, and 1200 November, and resistance is at 1290, 1310, and 1320 November.

DJ Brazilian Coffee Exports Rose 2.6% in September
By Jeffrey T. Lewis
SAO PAULO–Brazilian coffee exports rose in September from a year earlier as demand from big foreign buyers increased, according to exporters group Cecafe.
The South American country exported 3.2 million 132-pound bags of coffee last month, an increase of 2.6% from the same month a year earlier and the biggest amount for the month in five years, Cecafe said Wednesday.
Brazil is the world’s biggest producer and exporter of coffee, and sales to the U.S., Germany, and Spain, all big importers of the aromatic beans, jumped from a year earlier. Exports to Spain rose 40% in September from a year earlier, sales to the U.S., the single biggest buyer of Brazilian coffee, increased 38.6% and sales to Germany advanced 37.2%.
Sales abroad of the arabica variety of coffee rose 3.7% to 2.6 million bags, while exports of robusta beans decreased 9.9% to 263,121 bags.
Exports of roasted, ground and instant coffee rose 5.1% in September to 324,704

SUGAR
General Comments: Futures closed lower in both markets although London December closed a little higher on tight supplies of White Sugar in Europe. Europe had a bad Sugar beet crop and the effects of the reduced production are now being felt. Reports of improving weather in Brazil were negative. World petroleum prices are relatively cheap and are not supporting ethanol demand ideas. Reports from India indicate that the country is seeing relatively good growing conditions and still holds large inventories from last year. The weather there has improved with the monsoon and some areas are seeing some excessive rains. Brazil mills are refining mostly for ethanol right now as has been the case all season but weakness in the petroleum markets could mean that more Sugar is being produced. The fundamentals still suggest big supplies, and the weather in Brazil is good enough and India has improved as the monsoon was late but brought ample rains in the end. The weather has been much more uneven in production areas from Russia into western Europe. Those areas had a very hot and dry start to the growing season and there are reports of crop losses this year.
Overnight News: Brazil will get scattered showers this week and drier weather this weekend. Temperatures should be near normal. ICE said that 806 contracts were posted for delivery against November Sugar 16 contracts.
Chart Trends: Trends in New York are down with objectives of 1230 and 1190 March. Support is at 1230, 1210, and 1190 March, and resistance is at 1260, 1290, and 1300 March. Trends in London are mixed to down with objectives of 331.00 and 322.00 December. Support is at 338.00, 335.00, and 331.00 December, and resistance is at 344.00, 349.00, and 355.00 December.

COCOA
General Comments: Futures closed lower on renewed selling from speculators. Trends are trying to turn down. The reports from West Africa imply that a big harvest is starting to be harvested. The weather in Ivory Coast has improved due to reports of frequent showers. There were reports last week that Ivory Coast is moving to regulate production with the aim of supporting higher prices to the market. How they plan to do this is not yet known, but both Ivory Coast and Ghana are doing what they can do boost Cocoa prices and maintain good earnings for producers. Growing and harvesting conditions in Asia are also reported to be good. The harvest is ongoing amid somewhat drier weather.
Overnight News: Scattered showers and storms are expected in West Africa. Temperatures will be on both sides of normal. Malaysia and Indonesia should see showers. Temperatures should average above normal. Brazil will get mostly dry conditions and near to above normal temperatures. ICE certified stocks are lower today at 3.658 million bags.
Chart Trends: Trends in New York are down with objectives of 2370 and 2270 December. Support is at 2390, 2370, and 2340 December, with resistance at 2490, 2510, and 2540 December. Trends in London are mixed. Support is at 1910, 1890, and 1870 December, with resistance at 1950, 1990, and 2020 December.

DJ Cocoa Price-Relief Program Could Encourage More Production: World Bank — Market Talk
1324 GMT – In the long run, the new cocoa export-pricing system in West Africa could encourage farmers to grow more beans. “The pricing mechanism itself could also motivate farmers, including in other countries, to raise their production as they will benefit from higher prices,” says Jacques Morisset, who was the World Bank’s chief economist in Ivory Coast until July. “Unfortunately, if it happens, such an increase in the global supply of cocoa would eventually push international prices downward and put pressure on the mechanism.” For now, investors are wagering that prices have further to run. In London, hedge funds and other investors last week held 45,244 more futures and options contracts betting that prices will rise than contracts betting they will fall. (joe.wallace@wsj.com)

DJ West African Poverty Alleviation Program Makes Cocoa This Year’s Hot Commodity
By Joe Wallace
Cocoa prices are surging as traders grapple with a new method for pricing exports designed to alleviate poverty among farmers in Ivory Coast and Ghana, the world’s largest growers of the chocolate ingredient.
At a time when weakness in the world economy is hurting assets such as oil and industrial metals, cocoa has been one of the top performers in commodity markets. Futures prices have climbed 19% to GBP1,932 ($2,361) a ton in London since Aug. 29, and have risen 12% to $2,451 a ton in New York. Prices were even higher in both markets before slipping back in recent days.
Uncertainty about the new way of pricing West African cocoa exports, designed to improve living conditions for farmers, is driving the rally. According to the World Bank, 80% of cocoa producers, or four million people and their families, live on less than $3 a day.
In July, Ivory Coast and Ghana said they would introduce a “living income differential” of $400 a ton, to be charged on top of the London futures price. The neighboring nations have the ability to swing prices because they grow around 60% of the world’s cocoa. Both their harvests dwarf those of Ecuador and Nigeria, the next-largest producers.
When physical cocoa prices, including freight costs, exceed $2,900 a ton over the course of a season, the premium will be funneled into rainy-day funds for farmers.
Traders say the derivatives market is having difficulty adjusting to the shake-up. Buyers and sellers of cocoa beans typically use futures and options to hedge against moves in prices, while investors use them to bet on whether the market will rise or fall.
“If you look at the fundamentals, by which I mean simple supply and demand, there’s no big story at all,” said Jonathan Parkman, co-head of agriculture at brokerage Marex Spectron. “The difficulty that pretty much every cocoa professional is having is how exactly to interpret the effect of the [living income differential], the new pricing system.”
The premium applies to next year’s cocoa crop, which the two countries will start to ship from October 2020. However, it has already been used in export contracts because large Western chocolate companies have locked in purchases well in advance of receiving their cocoa.
One factor pushing futures prices higher: Companies that normally buy cocoa directly from West Africa appear to have been buying beans from exchange stores instead. The Ports of Delaware River and New York, where futures traders can hold cocoa in Intercontinental Exchange warehouses, housed 243,512 lots of Ivorian cocoa Monday. These stockpiles have depleted by 44% since the end of August, a steep decline in what is normally a source of last resort.
“It’s a different negotiation every time someone wants to buy cocoa from West Africa,” said Carlos Mera, an analyst at Rabobank.
This uncertainty has emerged since the price-relief system was introduced and “creates a huge amount of risk that is not hedgeable,” he added. “The market is scrambling for every good quality bean outside West Africa.”
Prices would be even higher if not for abundant cocoa bean supplies. Producing countries grew 4.85 million tons in the 2018-19 season, according to the International Cocoa Organization, the biggest crop on records dating back to 1960.
Improving rainfall in the Ivory Coast and Ghana has eased worries that the 2019-20 harvest would be hit by dry weather. In Ghana, the spread of swollen-shoot virus in cocoa trees is considered a slow-burn concern rather than an immediate threat to production.
In the long run, economists say the pricing system could encourage farmers to grow more beans, pulling prices down instead of pushing them up.
“The pricing mechanism itself could also motivate farmers, including in other countries, to raise their production as they will benefit from higher prices,” said Jacques Morisset, who was the World Bank’s chief economist in Ivory Coast until July. “Unfortunately, if it happens, such an increase in the global supply of cocoa would eventually push international prices downward and put pressure on the mechanism.”
For now, investors are wagering that prices have further to run. In London, hedge funds and other speculative investors last week held 45,244 more futures and options contracts betting that prices will rise than contracts betting they will fall, according to Intercontinental Exchange.