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Cocoa Demand Concerns Persist


With near-term demand remaining a front-and-center issue, there was little surprise that cocoa fell back on the defensive yesterday. The market survived a retest of its late February lows, however, and continues to have bullish supply development that can underpin prices. Fed Chair Powell’s congressional testimony emphasized the point that the process of getting inflation down to 2% has a long way to go, which is likely to weaken demand for discretionary items such as chocolates. Fed Chair Powell also pointed towards more rate hikes this year that the market has priced-in, which further diminished global risk sentiment and pressured the cocoa market.

cocoa pods


Follow-through buying from the positive daily reversal is a supportive technical development. While there are signs of improving demand, coffee will need to find fresh bullish supply news in order to extend its recovery move. Although Fed Chair Powell’s pointed towards inflation remaining high which would dampen out-of-home consumption, below normal rainfall over Brazil’s main Arabica growing regions last week provided underlying support. In addition, the continued drawdown in ICE exchange coffee stocks has given coffee prices an additional boost this week as they reflect some improvement with European demand.


May cotton has been chopping around inside a range bounded by 77.02 and 89.31 since early November. The US market closed lower yesterday after falling to its lowest level since February 24. A sharp rally in the dollar, with the March Dollar Index trading to its highest November 30, pressured cotton. This was after Federal Reserve Chair Powell told the Senate Banking Committee that the bank will likely have to raise rates higher than previously forecast. Weakness in equities and crude oil were also negative influences on cotton. For the monthly USDA supply/demand (WASDE) report on Wednesday, the average trade expectation for US 2022/23 ending stocks is 4.26 million bales, with a range of expectations from 4.05 to 4.50 million.


Sugar prices have extended their March breakout to the highest levels since November, 2016 as they benefited from bullish supply developments from India. With key outside markets taking a negative shift, however, sugar prices may be vulnerable to a near-term pullback. Ideas that India will not reach their government’s production threshold for allowing more exports this season (33.4 million tonnes) provided the sugar market with underlying support, as that would keep 1 million tonnes of sugar out of the global marketplace. Weakness in energy prices and the Brazilian currency put carryover pressure on sugar prices and helped to limit the advance.

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