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Cocoa Prices Hold Their Ground

COCOA

Cocoa prices have seen coiling action over the past few weeks, but continue to hold their ground above the mid-October lows. If global risk sentiment continues to improve, cocoa should be able to sustain an upside move. For the week, December cocoa finished with a loss of 4 points which was a third negative weekly result in a row. A rebound in European and US equity markets as well as a recovery move in the British Pound provided cocoa with carryover support, as continued strength in those outside markets can help to shore up demand prospects in Europe and North America. Along with the Eurocurrency, those markets are likely to see significant price volatility coming into and just after Wednesday’s FOMC meeting results, so their carryover support to the cocoa market may be limited. Recent rainfall over West African growing areas may improve the prospects for the region’s late main-crop production, and that pressured the cocoa market going into the weekend. Last week’s port arrivals total was ahead of the comparable period last year, and another reading this week above the 2021 total could put additional pressure on cocoa prices. High prices for fertilizers and pesticides have led many West African farmers to pull back on their usage this year, and that will have a negative impact on the region’s 2022/23 cocoa production.

cocoa pods side view

COTTON

December cotton sold off sharply again on Friday and traded to its lowest level since January 2021 and closed limit down. The market closed 9% lower on the week and was down for the seventh week in a row. Harvest pressure and lack of mill demand have been blamed for the selloff. Traders remain concerned about demand with the possibility of a global recession looming over the market. Concerns about Chinese demand loom as well with the “Zero Covid” policy expected to continue. News of cancellations of US cotton sold to China has added to the negative tone. Friday’s Commitments of Traders showed managed money traders were net sellers of 8,752 contracts of cotton for the week ending October 25, reducing their net long to 13,280. Non-commercial, no CIT traders were net sellers of 8,917, increasing their net short to 14,606. The market remains in a steep downtrend and there is still no technical sign of a low.

COFFEE

Coffee prices have maintained downside momentum and have lost 22% in value over the past 2 1/2 weeks. The market is technically oversold, which should have coffee close to putting in a longer-term low. December coffee experienced a thirteenth negative daily result in a row on Friday and for the week, December coffee finished with a loss of 21.10 cents which was a fourth negative weekly result in a row. Concern that inflation levels remain high enough to diminish out-of-home demand prospects continues to be a major source of pressure on the coffee market. Europe is a key demand region for restaurant and retail shop coffee consumption, so having the latest German, French and Italian CPI reading come in well above trade forecasts gave an additional boost to demand concerns. Recent rainfall over Brazil’s major Arabica growing regions is expected to improve the outlook for their upcoming 2023/24 Arabica crop, and that also pressured coffee prices going into the weekend.

SUGAR

Sugar prices have retraced most of their early October rally and are on-track for a negative monthly result. Unless the market has signs of improving ethanol demand, sugar may be heading for a test of its mid-September lows. March sugar finished Friday’s trading session with a moderate loss and a tenth negative daily result in a row. For the week, March sugar finished with a loss of 80 ticks which was a second negative weekly result in a row. Sharp selloffs in crude oil and RBOB gasoline were sources of carryover pressure on the sugar market as that should weaken ethanol demand in Brazil. Sugar prices may be impacted from Sunday’s Brazilian Presidential runoff results. Lula may be less negative for ethanol and this may be seen as a supportive development. After Friday’s close, India’s government extended their sugar export curbs through October of 2023 but did not specify a total export quota for the 2022/23 season. Many expect that India will announce an initial export tranche of 5 to 6 million this week with an additional export trance announced later in the season. This uncertainty is somewhat supportive. While this should be at least 3 million tonnes, the potential for record high production this season may encourage India’s government to expand the second tranche to 4 or 5 million tonnes.

 

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