Cocoa Prices Recover Losses
Cocoa prices have recovered all of their losses from a late September downside breakout, but have had trouble holding their ground above the 50-day moving average. With key outside markets having a much stronger tone, cocoa should be able to extend its recovery move. The Eurocurrency, British Pound, European equities and the US stock market posted sizable gains, all of which provided significant carryover support to the cocoa market. Near-term demand concerns may not be fully soothed until inflation gauges have large and sustained pullbacks from their current multi-decade highs. This week’s news that Ghana’s Cocobod was able to secure a $1.1 billion syndicated loan for their 2022/23 cocoa purchases should help to shore up cocoa prices. Although there is no guarantee that Ghana’s farmgate price will be closing in-line with Ivory Coast’s minimum farmgate prices, Cocobod’s loan deal should ease some concerns with Ghana’s cocoa producers. The dropoff in fertilizer and pesticide use due to high costs will limit the chances for this season’s West African cocoa production to have a sizable increase from last season.
December cotton closed sharply higher yesterday as the market appeared to reject Monday’s move to its lowest level since July 15. The dollar was sharply lower on Monday, with the December Dollar Index falling to its lowest level since September 21, and this was supportive to cotton on ideas it makes US cotton exports more competitive on the world market. Sharp rallies in crude oil and the stock market were also supportive. In a monthly report, the International Cotton Advisory Committee stated that concerns about the global economy have prompted investors to anticipate a decline in cotton consumption, and that this has undermined prices despite reductions in output. The 6-10 and 8-14-day forecast call for above normal chances for rain in West Texas, which can slow harvest and damage open bolls. The southeast and Delta look dry.
Coffee prices have found their footing after a 3-session losing streak as the market continues to receive supportive supply news. With a rebound in global risk sentiment helping to soothe near-term demand concerns, coffee may be able to see a recovery bounce. Colombia’s September coffee production came in at 836,000 bags, which was 31% below last year’s total. Colombia’s coffee production over the past 12 months is 11.862 million bags, which is far below their recent annual totals and reflect the negative impact of the La Nina weather event. Honduran coffee exports last month were 28% below last year’s total while September Costa Rican coffee exports were 60% below last year, both of which reflect lower Central American production last season. While Brazilian growing areas received rainfall that will encourage flowering, their trees have experienced weather issues that will negatively impact their upcoming 2023/24 production. ICE exchange coffee stocks were unchanged on Tuesday which will keep them at their lowest levels since April of 1999.
Sugar prices clearly benefited from a positive turnaround in key outside markets and global risk sentiment, but were unable to lift clear of the recent consolidation zone. Unless the global supply situation can also have a bullish shift, sugar remains vulnerable to further downside price action. Crude oil and RBOB gasoline extended their October rallies with a second set of sizable daily gains, and that provided carryover support to the sugar market as that can help to improve the near-term ethanol demand outlook. While the Brazilian Presidential election result is still uncertain, the prospect that Brazilian state fuel taxes will remain capped should keep Center-South mills from shifting more of their crushing back to ethanol production.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.