Cocoa Prices Under Pressure

COCOA

While the outlook has improved since the start of this year, near-term demand concerns continue to weigh on cocoa prices. If global risk sentiment remains weak after today’s events, cocoa prices could remain under pressure. Both European and US equity markets had sizable pullbacks due in part to a flare-up of risk anxiety, which weakened cocoa prices as that may diminish near-term demand prospects. While it is well below the “double-digit” readings that were seen last fall, the April year-over-year rate for Euro zone CPI saw its first uptick in six months. This indicates that inflation in cocoa’s largest demand region remains stubbornly high and is likely to impact the European demand outlook during the second quarter.

COFFEE

Coffee prices have been able to overcome sluggish global risk sentiment to stabilize early this week. In order to extend a recovery move, coffee will likely need to see fresh bullish supply developments. A more than 1% pullback in the Brazilian currency put early pressure on the coffee market as that could make Brazil’s farmers more aggressive with marketing their remaining coffee supply to foreign customers. ICE exchange coffee stocks fell by just 570 bags on Tuesday, but they have reached their lowest levels since December. With no coffee going through the ICE exchange grading process for several weeks now, this recent drawdown may show evidence of improving demand that has provided additional support for coffee prices early this week.

COTTON

July cotton managed to rally all the way above the 50-day moving average yesterday and up to the highest level since April 20, but the market failed to find new buying interest and closed moderately lower on the session. A collapse in crude oil prices plus weakness in the stock market were seen as bearish forces. Traders are second guessing the recent more positive export news, and traders are becoming more concerned with weaker consumer demand ahead. Traders were optimistic on the positive tilt to exports but it does not seem to be enough to significantly tighten US ending stocks. Stocks are already pegged at the highest level since the 2019/20 season at 4.1 million bales and even with a sharp drop in planted area, a normal yield would push ending stocks moderately higher than this season.

SUGAR

Sugar prices have posted their first back-to-back negative daily results since late March and lost more than 6% in value from last Thursday’s 11 1/2 year high. Unless it can receive strong carryover support from key outside markets, sugar is likely to see more profit-taking and additional long liquidation this week. A sharp selloff in energy prices put carryover pressure on the sugar market as crude oil and RBOB gasoline at 5-week lows is likely to weaken near-term ethanol demand. In addition, the Brazilian currency lost more than 1% in value which also weighed on sugar prices as that will give Brazil’s Center-South mills more incentive to produce sugar for the global export marketplace. Most of the sugar delivered against the ICE May contract came from a Chinese firm, and that cast some doubt over China’s near-term sugar demand outlook.

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