Brazil Rain Slows Sugar Production
Sugar prices have risen more than 1.00 cent in value over the past 3 days and have climbed well above their 50-day moving average. While there have been bullish supply developments to provide support, sugar may need additional strength from key outside markets in order to extend its October recovery move. A sizable cut in their crude oil production by the OPEC Plus nations triggered a sizable rally throughout the energy markets with RBOB gasoline prices reaching a 7-week high, and that provided a boost to sugar prices. Stronger energy prices can help to shore up ethanol demand in Brazil and India, but it may take much higher prices for Brazil’s Center-South mills to have a significant shift in their crushing towards ethanol production and away from sugar production. Rain in the forecast for Brazil’s Center-South cane-growing regions will slow down this season’s harvesting and crushing, and that has given additional support to sugar prices late this week.
Cocoa prices remain on-track for a second positive weekly result in a row, but are receiving carryover pressure from key outside markets. In spite of recent bullish supply developments, cocoa may have a downbeat finish to the week. Expectations that lower fertilizer use will have a negative impact on this season’s West African production provided an early source of strength to the market yesterday and the lower close is a bearish technical development. In spite of front-month futures prices falling by more than 300 points over the past year, both Ivory Coast and Ghana increased their minimum price for 2022/23 main crop purchases, which was also a supportive factor for the market. However, sharp selloffs in the Eurocurrency and the British Pound as well as a pullback in European and US equity markets put carryover pressure on cocoa prices.
December cotton fell below its July low yesterday and traded to its lowest level since September 24, 2021. The dollar was higher for the second day in a row, making US exports less attractive on the world market. The export sales report showed a modest improvement from the past few weeks. US cotton sales for the week ending September 29 came in at 121,209 bales for the 2022/23 (current) marketing year and 48,489 for 2023/24 for a total of 169,698. Sales have reached 67% of the USDA’s forecast for the marketing year versus a five-year average of 57%. The largest buyer this week was Pakistan at 92,362 bales, followed by Bangladesh at 18,712. China was in ninth place at 4,602. The strong export pace suggests the USDA could raise its 2022/23 export forecast in the monthly supply/demand (WASDE) report next week, but traders are still worried about demand with the threat of a global recession looming over the market.
Coffee has seen volatile price action over the past 3 weeks that continues to tighten around its 3 major moving averages. While the market continues to find support from bullish supply factors, a flare-up of near-term demand concerns has pressured. Rainfall over Brazil’s Arabica growing areas, which weighed on coffee prices as that may lead to flowering that will benefit their upcoming production. Colombia’s annualized production pace has reached an 8-year low, which also provided coffee with early strength. Wednesday’s negative shift in global risk sentiment may diminish out-of-home coffee consumption prospects over the rest of this year. ICE exchange coffee stocks (most of which are held in warehouses located in the Euro zone) fell by only 300 bags on Thursday, but that resulted in their lowest daily total since April of 1999. While the supply side remains bullish, further deterioration in global risk sentiment could drive coffee prices further to the downside.
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