Cocoa Demand Stays Strong
Global risk sentiment may remain volatile but cocoa should continue to find support from a bullish global supply/demand outlook. July cocoa continued to see coiling price action this week. A lukewarm tone to global risk sentiment continues to weigh on cocoa prices as that may weaken near-term demand prospects. In addition, a pullback in the Eurocurrency and British Pound put carryover pressure on cocoa prices. Inflation gauges remain high in many developed economies, but they have been in a steady decline since late last year which can help to strengthen demand prospects for discretionary items such as chocolate.
Coffee prices have followed last Friday’s reversal with nearly 10 cents in gains so far this week. With signs of an improving demand outlook, coffee could remain in a short-term uptrend. Costa Rica’s March exports came in slightly below last year’s total, which provided support to the coffee market as it indicates that Central American exports may fall back during the second quarter. A moderate rebound in the Brazilian currency also provided coffee with carryover support as a stronger currency eases pressure on farmers to market their coffee to foreign customers. While inflation remains high, it has been on a steady downtrend for many nations since the second half of 2022. As a result, this should help to improve the outlook for restaurant and retail shop coffee consumption during the second quarter.
May cotton closed near unchanged yesterday after spending the session in the lower half of Tuesday’s range down. The dollar was higher after trading lower for two straight sessions and the stock market were moderately lower, both moves negative to cotton. Crude was moderately higher when cotton closed, which may have lent some mild support. Some noted that after two days of lower closes, cotton may have seen some short covering heading into today’s export sales report. While the demand news is expected to turn weaker, Texas soil conditions remain very poor, and there is no rain in the five day forecast. However, both the 6-10 day and 8-14 day forecast models show above normal precipitation. As a result, weather could shift to a more bearish tone if the rains emerge next week.
July sugar posted new 6 1/2 year highs overnight from an overbought condition, and a lower close today would represent a key reversal. Sugar prices continue to benefit from bullish supply news and a recovery in key outside markets. Tight near-term global supply of refined (or “white”) sugar has underpinned prices at the start of the second quarter. The India Sugar Mills Association (ISMA) said that their nation’s sugar production during the first half of the 2022/23 season was 3.3% behind last season’s pace. This gave a significant boost to sugar prices as this was their first reading showing India’s output coming in lower than last year.
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