Carryover Pressure on Sugar
Sugar has now had 6 trading session in a row with a trading range of 28 ticks or less as the market continues to see coiling price action. There has been little benefit from improved global risk sentiment, however, and that leaves sugar vulnerable to a downside breakout. Sluggish energy prices were a source of carryover pressure as they will encourage Brazil’s Center-South mills to continue producing more sugar at the expense of ethanol.
Cocoa is unlikely to fully shake concern over global demand until most of the world’s coronavirus restrictions are removed. Global risk sentiment has been on the mend early this week. Cocoa found carryover support from stronger global equity markets and a rebound in the Eurocurrency which helped to shore up near-term global demand prospects. In addition, a recovery move in the British Pound fueled arbitrage buying of New York cocoa versus the London cocoa contract.
Coffee has been overbought for several weeks but a change in Brazilian weather was the catalyst for a severe washout as there may be further downside price action before it can find its footing. Updated forecasts call for wetter weather over Brazil’s major Arabica growing regions starting on Sunday which will go some way to relieving the excessive dry conditions seen during the past few months.
Unless the rain over the next five days causes severe flooding in parts of Texas and the Delta, the upside appears limited for the cotton market. The technical action is still impressive, however in there is no technical sign of a short-term peak. Open interest remains in a minor uptrend as fund traders continue to buy. The buying Monday pushed the market up to the highest level since February 26. The market rallied on concerns that Tropical Storm (and soon to be Hurricane) Sally, which is heading towards landfall on the Gulf Coast, could damage the cotton crop.
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