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.
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.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.