Bearish Demand Trend for Cotton

COTTON

The USDA report on Friday confirmed a bearish trend for export demand from the US, and a lower consumption trend for the world market as well. Lower demand for apparel in Asia and Europe over the near term could cause the pipeline to clog. Strength in the US dollar and a sharp break in soybeans may have added to the negative tone yesterday. The selling pushed the market down to the lowest level since November 29. Expectations for weak consumer demand from Asia and Europe has helped to spark selling pressures from global money managers who see apparel as discretionary spending in this economy. Brazil (fourth largest producer) could become the world’s largest exporter of cotton in 2023, with an increase in planted area.

COCOA

While cocoa prices will receive significant guidance on inflation prospects over the next 3 sessions, they continue to hold their ground above the 200-day moving average. As a result, cocoa is looking as if it will remain fairly well supported. The latest weekly reading for Ivory Coast port arrivals came in well above the comparable period last year, which has kept their full season arrivals total ahead of last season’s pace. This put pressure on the cocoa market as Ivory Coast has made up for early delays due to a dockworkers strike and is relatively well supplied going into year-end. A rebound in global risk sentiment provided a boost to cocoa’s near-term demand outlook and helped the market regain some strength. Today’s US CPI reading is forecast to have a fifth decline in a row for the year-over-year rate, and that could provide a boost to cocoa prices. Very high year-over-year inflation readings have been a major source of pressure for cocoa’s demand outlook, as they diminish the demand outlook for discretionary purchases such as chocolate.

COFFEE

Coffee’s Monday trading range was larger than the previous 6 sessions combined, which underscores the severity of its positive turnaround. If global risk sentiment can maintain a positive tone, coffee may have a sizable upside extension to this recovery move. The Brazilian currency lost more than 1.5% in value which put early pressure on the coffee market as that encourages Brazil’s farmers to market their remaining near-term supply. The Brazilian trade group Cecafe said that their nation’s November Arabica exports came in at 3.30 million bags which was 25.5% above last year’s total. Given that their 2022/23 crop was the second smallest over the past 9 “on-year” Arabica crops, this surge in Brazilian exports can help to soothe near-term demand concerns. In addition, indications of production issues in Colombia helped coffee to maintain upside momentum.

SUGAR

Sugar prices have received some bullish supply developments from Brazil, but their longer-term supply outlook remains bearish. Unless the market can see much stronger energy prices, sugar could extend a downside price move. Crude oil and RBOB gasoline prices were able to lift clear of their recent lows, and that provided the sugar market with carryover support. The Brazilian trade group Unica released their latest supply report which showed their nation’s Center-South sugar production during the second half of August came in at 1.030 million tonnes, which was 532% above the comparable period last year. In fact, Center-South crushing was 318% above last year while Center-South ethanol production was 148% above last year. Early delays this season has meant that harvesting and crushing have continued in some areas well beyond their normal finish.

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