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Coffee Continues to be Weighed Down


Coffee’s fourth quarter downdraft has left prices closer to last year’s low of 132.60 than they are to last month’s high of 216.25. Coffee continues to be weighed down by the rapid build-up of European near-term supply. For the week, March coffee finished with a loss of 13.00 cents (down 7.7%) which was a seventh negative weekly result over the past 8 weeks. While a rebound in the Brazilian currency provided coffee prices with early carryover support, continued concern with the global demand outlook continued to pressure the coffee market late this week. ICE exchange coffee stocks (most of which are held at Euro zone warehouses) rose by 13,720 bags on Friday, and are close to climbing back above the 500,000 bag level for the first time since September. More importantly, there are more than 565,000 bags still waiting to be graded at the port of Antwerp. While not all of that coffee will pass the grading process, ICE exchange coffee stocks will climb to much higher levels over the next few weeks which will indicate lukewarm European out-of-home consumption levels. The buildup of ICE exchange coffee stocks has overshadowed what it still a generally bullish global production outlook.

coffee beans close up


For the week, however, March cocoa finished with a loss of 62 points (down 2.5%) which broke a 2-week winning streak. Ivory Coast port arrivals remain well behind last season’s pace following a strike at the port of San Pedro, and that continues to provide support to cocoa prices. Many West African cocoa trees did not receive adequate fertilizer and pesticides due to high costs, and that is likely to a negative impact on this season’s main crop production. A strong finish to the week for European equity markets provided carryover support to cocoa as that helped to soothe near-term demand concerns in that region. Recent inflation readings for the Euro zone and the UK remain close to 40-year highs, however, and that will dampen purchases of discretionary items such as chocolate. Ivory Coast’s CCC and Ghana’s Cocobod are threating to prevent major corporations from going to cocoa plantations to gauge the current harvest, and could also suspend their sustainability programs. If they follow through on those threats, it could result in near-term supply bottlenecks during the fourth quarter.


December cotton closed lower on Friday after probing below the low end of its two-week trading range and the selling pushed the market down to the lowest level since November 4th. The dollar closed higher, which is negative to cotton, but it failed to break out on the top end of its recent consolidation zone. It looks like China is far from being clear of its Covid restrictions, and this has traders concerns about demand going forward. In addition, traders are concerned that while consumer retail sales have been a positive influence on the economy, apparel sales do not look good, and traders are believing that consumers will back away from nonessentials for the holiday season and for early 2023. The US export sales on Thursday were disappointing, with only 31,155 bales (old and new crop combined), the lowest since July.


Sugar prices rose more than 16% in the space of three weeks, as a bottleneck in India created a short-term supply problem for the global market. The global supply fundamentals remain bearish, and this should reemerge as a negative force on prices. For the week, March sugar finished with a gain of 41 points (up 2.1%) for a third positive weekly result in a row. The Brazilian currency regained more than 1% in value which provided carryover support to the sugar market. Soaring domestic prices have compelled Indian mills to renegotiate sales contracts while other mills were defaulting on contracts with overseas buyers. As much as 400,000 tonnes are thought to impacted, which underpinned sugar prices late last week. India’s exports are expected to reach 9 million tonnes this season, which would be down from 11.2 million last year but their second largest on record. Brazil has shifted some of its cane crushing activity from ethanol production to sugar. The latest Unica report showed that the share of crushing for sugar production was 48.5% during the second half of October, up from 37% for the same period last year. The full-season share has moved ahead of last year’s pace, and that has sparked upward revisions in 2022/23 Center-South sugar production estimates.


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