ADMIS News
SUGAR
While the soft commodity sector can see across the board inflows from funds and speculative traders because of significant strength in one market (the market current have two strong markets cocoa and coffee), yesterday’s new low for the move and the lowest price in October sugar since mid-February suggests the sugar market is unlikely to see increased capital inflows in the near term. In fact, recent COT positioning report showed Commodity Index Traders holding a massive net spec and fund long of 36,000 contracts which is near the highest levels since 2021. Given the shift down in global energy prices, the sugar trade is likely to remain under pressure given its fundamental link to oil.
COTTON
Like the sugar market, the cotton market has yet to benefit from the newfound speculative interest in coffee and cocoa from the El Niño phenomenon. Clearly, cotton bears are becoming more confident with each new high for the move in the US dollar as that lowers the attractiveness of US supply to foreign buyers. Therefore, US cotton prices are likely to continue to slide to offset the expanding negative currency impact. Furthermore, the most recent US crop progress report confirmed US planting is nearly complete with expectations that planted area will not decline as feared because of tight/high fertilizer prices.
COCOA
With London cocoa posting six week highs, and US cocoa prices seemingly poised to breakout to the highest levels since mid-January, we see the potential for a “bull market” ahead. However, periodic doubt on the strength of the El Niño and less evidence of real time impacts on production on the ground, should offer periodic opportunities to get long for a long term position. While no cocoa is produced in Europe, the unparalleled heatwave in Europe certainly makes traders psychologically sensitive to the El Niño impact on southern hemisphere production areas.
COFFEE
Historically, soft commodity markets tend to trade in sync perhaps because managed money allocations in one market can result in increased investment in the entire sector. Therefore, recent strength in the coffee which coincides with strength in cocoa prices could mean the funds are moving into the soft commodity market sector. Clearly, the El Niño threat is gathering “press coverage” which in turn usually generates speculative interest. Furthermore, the El Niño theme typically takes months to resolve, and coffee production has been historically impacted by El Niño. Unfortunately for the bull camp, early El Niño conditions can increase precipitation in Brazil, but as indicated yesterday Asian coffee production has become just as important as South American production over the last decade, and the Asia areas can see a much larger negative impact from El Nino. However, Brazilian growers have confirmed a slowdown in harvest due to recent rain and a cooler forecasts has added to supply concerns.
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