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Cocoa Demand Concerns

COCOA

Cocoa prices were slightly weaker overnight after the world’s third largest processor predicted a global surplus this season and next. The market continues to face headwinds from demand concerns, but even if North American demand remains subdued for the rest of this year, Europe and Asia are showing signs that their low point already occurred during the second quarter. With near-term supply issues providing additional support, cocoa may be able to extend a recovery move back towards the August highs. Tuesday was second session in a row that cocoa traded below its 200-day moving average before closing back above it.

COFFEE

December coffee was higher again overnight, trading to its highest level since August 6, as the market continues to find support from tightening exchange stocks. It closed above the 200-day moving average for three sessions in a row and is pushing up against a key retracement level this morning at 122.50. ICE exchange coffee stocks reached a new multi-year low on Tuesday. They have fallen by more than 228,000 bags in August, which would the largest monthly decline since December 2004 and the largest percentage decline since October 1998.

COTTON

December cotton was near unchanged overnight and failed a recovery attempt after yesterday’s decline. The market was clearly disappointed that the Texas crop didn’t worsen last week after the longer-term forecasts were calling for “above normal” temperatures and “below normal” precipitation. Some rain was received over the past week, and that allowed for the Texas crop to show a 5% improvement

in the good/excellent ratings. The USDA is already calling for a 27% abandonment rate in Texas, so the poor expectations for their crop may already be baked into their forecasts.

SUGAR

October sugar was slightly higher overnight after yesterday’s selloff and break below round-number support at 13.00. The market’s inability to extend last week’s upside breakout is another sign that it may be getting top-heavy, and unless it can find fresh supply/demand support, it could see an extended pullback. Sharp increases in Brazilian and Indian production should result in a hefty global surplus for 2020/21. In addition, rains in Thailand this week have brought much needed moisture to their growing areas.

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