Coffee Could See Recovery Move
Coffee prices remain in a steep downtrend. While out-of-home consumption remains an area of concern, coffee may be in position for a recovery move. December coffee continued to build on early support as it finished Monday’s inside-day trading session with a sizable gain that broke a 13-session losing streak. Sunday’s Presidential runoff had the challenger Lula winning by over 2.1 million votes and although this was far from a landslide, this provided coffee prices with carryover support as the threat of a post-election decline in commercial activity appears to have been averted. A more than 2% recovery move in the Brazilian currency followed the runoff election, which also benefited coffee prices as that should ease pressure on Brazilian producers to market their remaining near-term supply to foreign customers. There were reports of hail over some coffee-growing regions of Brazil’s Minas Gerais state that may have damaged coffee trees, and that gave an additional boost to coffee prices early this week.
While cocoa was unable to avoid a sixth negative monthly result over the past 7 months, the market finished October on an upbeat note in spite of the negative tone to key outside markets. With the market continuing to receive bullish supply developments, cocoa may extend its recovery move. Weaker equity markets in Europe and the US and sizable pullbacks in the British Pound put early pressure on cocoa prices. In addition, Euro zone CPI came in well above trade forecasts and reached a record high which reinforced concern over high inflation that could dampen purchases of discretionary items such as chocolate. However, a lack of adequate fertilizer and pesticide usage has reduced the outlook for this season’s West African production, and that continued to underpin cocoa prices early this week. The latest weekly reading for Ivory Coast port arrivals came in below the comparable period last year, which has kept this season’s total well behind last season’s pace and provided additional support to the cocoa market.
While closing lower yesterday, December cotton appears to have formed a spike bottom low. With the extreme oversold condition, the market seems to be in position for at least a temporary recovery bounce. The market pushed down to its lowest level since December 2020 yesterday. The dollar closed higher for the third consecutive session, and this has reinvigorated concerns about US export prospects. Crude oil and the stock market were also lower, which does bode well for cotton demand. The main factor for the selloff has been concern about global demand, with the world facing a potential recession in the wake of moves by central bankers to raise interest rates and rein-in inflation and by ongoing concerns about recurring lockdowns in China due to their Zero-Covid policy. Quick progress in the US harvest has also pressure prices, but that may be wrapping up soon. Cotton harvested as of October 30 was up 10% at 55%.
Sugar’s abrupt change in fortune allowed the market to finish October with a positive monthly result. Although it may need to find more bullish supply developments and additional carryover support from key outside markets, sugar may be able to extend its recovery move during early November. March sugar broke a 10-session losing streak. A victory for the challenger Lula in Brazil’s Presidential election runoff by more than 2 million votes benefited sugar prices, as that could lead to the removal of Brazilian state fuel tax caps and would significantly improve ethanol’s cost advantage to gasoline. In addition, a more than 2% post-election rebound in the Brazilian currency provided sugar prices with carryover support as that eases pressure on Brazil’s Center-South mills to produce sugar for the global export marketplace.
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