Cocoa Reaches Multi-Year High

COCOA

Cocoa’s bullish supply developments have helped the market overcome volatile global risk sentiment to reach a multi-year high. With the market near-term overbought after rising 286 points over the past 8 sessions (and gaining 10.9% in value), cocoa remains vulnerable to a profit-taking pullback. A late rebound in the Eurocurrency and British Pound provided cocoa prices with additional strength. The latest weekly reading for Ivory Coast port arrivals was slightly above the comparable period last year, but their full-season arrivals total remains well behind last season’s pace. There was above average rainfall over many West African growing areas last week that will benefit the region’s upcoming mid-crop production. Discretionary items such as chocolates have their demand impacted by the ebb and flow of global risk sentiment.

COFFEE

While there has been some improvement in global risk sentiment early this week, it has not been enough for coffee prices to sustain an upside breakout of its March consolidation zone. While bullish supply developments should underpin prices this week, coffee may continue to see volatile price action. A mild rally in the Brazilian currency provided coffee with carryover support as that will ease pressure on Brazil’s farmers to market their remaining 2022/23 coffee supplies. Last week’s rainfall was below normal, however, while the region has dealt with drier than normal conditions during two La Nina weather events since the middle of 2020. A reversal from Monday’s 3 1/2 week high could lead to downside follow-through that could trigger a wave of additional long liquidation.

COTTON

The market appears to have put in a near-term low with the action yesterday. Crude oil and the stock market were higher and the dollar was lower, all of which is supportive to cotton. Backing sector concerns were appeased by news that First Citizens BankShares said it would take on the deposits and loans of Silicon Valley Bank, and this calmed concerns about cotton demand. Another factor which may have helped support the strong gains is the very poor soil conditions for key growing areas of Texas. Topsoil and subsoil moisture is rated very poorly and the 1-5 day forecast calls for no rain for Northwest Texas.

SUGAR

Sugar remains in a slow but steady uptrend. While the market has received bullish supply news from India, it may be developments in Brazil that limits sugar’s upside. A sizable rally in crude oil and RBOB gasoline provided carryover support to the sugar market, as that should help to strengthen near-term ethanol demand in Brazil and India. 2022/23 Maharashtra sugar production is now expected at 10.7 to 10.8 million tonnes, which compares to 13.7 million tonnes last season and makes it more likely that India’s government will not allow any further sugar exports this season. The Brazilian currency extended its recovery move which also provided a boost to sugar prices as that will ease pressure on Center-South mills to produce sugar for the global export market. Archer Consulting said that Brazilian producers have hedged around 20.2 million tonnes of their upcoming 2023/24 sugar production by the end of February, which would be roughly 85% of their nation’s expected 2023/24 sugar exports. This would imply that there will be relatively little additional hedge selling from Brazilian producers over the rest of this year, but it may also indicate that those producers feel that prices are unusually high going into the start of the season.

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