ADMIS News
COCOA
High retail inflation can force consumers to pull back on purchases of discretionary items like chocolate. However, the recent declines in year-over-year inflation in the US and the Euro zone should give a boost to chocolate demand in both regions and should underpin cocoa prices going forward. For the week, March cocoa finished with a gain of 52 points (up 2.1%) which was a second positive weekly result in a row. Indications that global demand can improve through year-end and into the first quarter of 2023 provided cocoa with underlying support. While the cocoa market has been pressured by demand concerns for several years, global grindings reached a record high during the 2021/22 season for second year in a row. If global grindings continue their long-term growth trend, then 2022/23 could bring a substantial supply deficit for the second year in a row. Furthermore, reduced fertilizer and pesticide usage by West African growers could limit production this coming season while Ghana and Nigeria have seen outbreaks of black pod disease that will limit their chances for increased output. The International Cocoa Association showed a 2021/22 global supply deficit of 306,000 tonnes. This marked an increase of 76,000 tonnes from their previous estimate and would be the largest deficit on record.
COFFEE
Fed Chair Powell’s speech last Wednesday may be an early indicator of improving coffee demand, as his suggestion that the Fed may pull back on the size of upcoming rate hikes may be due to a pullback in inflation that should benefit restaurant and retail shop demand prospects. With the market already benefiting from a bullish longer-term supply outlook, coffee prices should stay clear of the mid-November lows. Lukewarm global risk sentiment following US and Canadian jobs data weighed on coffee as that could weaken coffee’s near-term demand outlook. Out-of-home consumption prospects have been boosted by a pullback in inflation levels in major developed economies, and that helped coffee to find its footing. The recent buildup in ICE exchange coffee stocks has also been seen as reflecting lukewarm demand as they increased by 4,075 bags on Friday to reach a 2 1/2 month high. Coffee waiting to be graded fell by 7,495 bags, however, which is another indication that those inflows are starting to subside. More than half of global Arabica production comes from Brazil and Colombia, both of which are seeing a negative impact on their production from the La Nina weather event.
COTTON
The surge higher in the China stock market overnight is a positive force. March cotton closed sharply lower on Friday after trading to its highest level in two weeks on Thursday. The stock market broke early in the session after the US jobs report came in higher than expected on fears that this would encourage the US Fed to stay the course on tightening, and this may have scared cotton longs to liquidate. The dollar was also higher early in the session, which was negative for cotton. The dollar sold off late in the session and ended up lower on the day, but this was after the cotton market had closed.
SUGAR
Sugar prices remain well below their mid-November highs as they are not receiving consistent support from key outside markets. With the market looking at a sizable global production surplus, sugar remains vulnerable to a sizable downside move. For the week, March sugar finished with a gain of 15 ticks (up 0.8%) which was fourth positive weekly result over the past 5 weeks. Energy prices put carryover pressure on the sugar market, as a continued pullback will weaken near-term ethanol demand prospects in Brazil and India. In fact, the latest Unica supply report showed sugar’s share of Brazil’s Center-South crushing during the first half of November was nearly 9% above the comparable period last year. If mills continue to keep their crushing mix at current levels, 2022/23 Center-South sugar production will come in above last season’s output total. The Brazilian currency fell back from an early 3-week high into negative territory late on Friday, which put carryover pressure on the sugar market as a weaker currency gives even more incentive for Center-South mills to produce sugar for the global export marketplace.
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