Cocoa Needs Bullish Demand Results
Cocoa prices are facing headwinds from near-term demand concerns that have put some brakes on the market’s September/October recovery move. The market will receive critical data today and tomorrow, and cocoa needs to see bullish demand results in order to regain upside momentum. Expectations that third quarter European grindings total will come in close to or exceed last year’s reading provided early support, but that strength is due in part to chocolate makers bringing their cocoa processing forward to avoid potential energy shortages this winter. The August US PPI reading later today is expected to decline to a 1-year low, and an in-line result could provide cocoa prices with support. Many West African growing areas have rainfall in the forecast each day through the middle of next week. While precipitation totals are expected to be light, this may lead to delays with harvesting and drying main crop cocoa beans.
December cotton closed moderately higher yesterday after the market traded to its highest level since October 5 but failed to take out that day’s high. Traders are looking for a decline in US 2022/23 ending stocks for today’s USDA monthly supply/demand report. For the report, the average trade expectation for US 2022/23 production is 13.34 million bales, with a range of expectations of 12.80 to 13.65 million and compared to 13.83 million in the September report. US exports are expected to come in around 12.48 million (range 12.20-12.60 million), down from 12.60 million in September. US endings stocks are expected around 2.46 million bales (range 2.07-2.93 million) versus 2.70 million in September. World ending stocks are expected to come in around 84.64 million bales (range 84.20-85.15 million) versus 84.75 million in September.
Expectations that Brazil and Colombia will have production issues through early 2023 continue to underpin coffee prices. Brazil exported 3.07 million bags of coffee in September, up 7.1% from a year ago. While Hurricane Julia caused some damage to coffee trees in Nicaragua, there was little impact on Guatemala’s coffee trees. ICE exchange coffee stocks fell by 320 bags on Tuesday and reached another new 23 1/2 year low, which provided an additional source of strength to the coffee market. Out of home consumption prospects remains a source of pressure on coffee prices as high inflation levels have resulted in consumers pulling back on many of their discretionary purchases. Restaurant and retail shop demand has not fully recovered from the sharp decline during the height of the COVID pandemic, and hopes for any further improvement may be limited by high inflation. As a result, coffee prices may benefit from a decline in the September US PPI which is released during today’s action.
The market received surprising bullish supply news from Brazil on Tuesday but was unable to take out Monday’s 2 1/2 month high due to the pressure from its key outside markets. However, the market took out the highs today. There were sizable pullback in energy prices and the Brazilian currency that put some pressure on the market yesterday. The Brazilian trade group Unica released their latest Center-South supply report which showed sugar production during the second half of September came in at 1.700 million tonnes which was 27.3% below last year’s total and well below trade forecasts. In addition, the Center-South cane crush was 29.7% below last year’s total while Center-South ethanol production was 28.6% below last year.
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