ADMIS News
SUGAR
October sugar is on track to break a two-week losing streak, as it moved higher overnight, apparently on strength in energy prices. The market seemed to lose upside momentum yesterday after a risk-off mood developed across the commodity markets in the wake of strong US economic data that boosted expectations for additional Fed rate hikes. If the monthly US jobs report comes in strong today, it could bring some additional pressure. The strong pace of Brazilian harvest and sugar output have been a key factor in the sugar market’s selloff since mid-June. Brazil’s major energy firm Petrobras has cut their wholesale gasoline prices twice since June 15 and four times since the start of March, with prices declining 23% over that timeframe. This has sharply reduced ethanol’s price advantage over gasoline and has given Brazil’s Center-South mills more incentive to produce sugar for the global export market. But this may have also left the sugar market sensitive moves any indication that crude oil or gasoline are ready to break out of their stagnating patterns.
COCOA
September cocoa could see additional selling pressure today after its steep selloff yesterday. The market fell victim to a “risk off” mood in the wake of some surprisingly strong US economic data, and it will face a US jobs report this morning that could bring more of the same. The threat of more rate hikes coupled with stubborn inflation in Europe has raised concerns about demand. A decline in recent West African daily rainfall totals this week should minimize the chances for flooding, while also benefiting the upcoming, 2023/24 production, and that has also weighed on cocoa prices this week. However, a lack of adequate fertilizer and pesticide use is expected to limit West African production, and a second large global production deficit is expected this year.
COFFEE
Coffee’s wide-sweeping price action on Thursday and higher close suggests at least a temporary bottom. The bulls may be encouraged by the market’s positive action in the face of ostensibly negative fundamental factors. Perhaps the shock of the strong harvest pace in Brazil has been absorbed. Coffee was a notable exception to a broad-based selloff in commodities yesterday, defying a risk-off mood sparked by strong US economic data that raised expectations for the Fed to increase rates at their July and September meetings. The market may have to endure pressure again today if the monthly US jobs data comes in strong. Earlier this week the International Coffee Organization released a forecast for a global production deficit of 7.3 million bags for 2022/23, which would come on top of a 7.1 million bag deficit in 2021/22. Rabobank said demand concerns are escalating after data showing coffee imports fell sharply in Europe, the US and Japan in the first quarter. The Brazilian real fell sharply yesterday to its lowest level in a month, and this could put additional pressure on coffee on ideas it would encourage Brazil’s farmers to sell their supply to foreign customers.
COTTON
One can argue that December cotton is in a minor downtrend, with a series of lower highs and lower lows since mid-May. That said, it is a bit early in the year to decide the crop is “made,” even if the cotton area under drought has shrunk to 18% from 68% a year ago. A hot and dry forecast for Texas for the next couple of weeks could lower yield expectations, and other problems could emerge before harvest. This suggests the market could stay within its 2023 range for a while, moving back and forth off crop concerns and demand news. Yesterday, the market seemed to fall victim to economic concerns after the June ADP employment survey and the ISM Services Index came in much stronger than expected, raising expectations for the Fed to say hawkish. The stock market sold off on the news, and this pressured cotton as well. There are also concerns about Chinese demand after a private services activity report for June showed the slowest pace of gains in five months. US cotton export sales have seen modest increases for the past couple of weeks, and traders will be anxious to see if this morning’s report does the same.
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