Coffee Futures Remain Higher
Cocoa is facing headwinds from a negative global demand outlook. Traders await next week’s second quarter European and North American grindings results. With a negative shift in key outside markets adding further pressure, bullish near-term supply factors may not be enough to prevent cocoa prices from sliding further into new low ground. The market is already down in 6 of the past 7 sessions.
Since March, the coffee market has had trouble sustaining upside momentum. In spite of ongoing demand concerns, negative global risk sentiment and sluggish outside markets, however, coffee prices are showing signs that a low was put in last month. An early rebound in the Brazilian currency provided coffee with carryover support as it will ease pressure on producers to market their coffee to foreign customers. However, the Real pulled back into negative territory after coffee’s close which may become a source of pressure. Labor availability issues have contributed to lower Central American output this season, and that continues to be a source of underlying support to the coffee market.
The market remains in a steady uptrend but technical indicators are bit overbought, and some back and fill action cannot be ruled out. The short-term supply and demand fundamentals plus a continued threatening weather forecast suggest a continued uptrend ahead. The Crop Progress report did not show a worsening in condition for the US cotton crop last week, and this may have helped hold the market inside of Monday’s range yesterday. With the forecast calling for little or no rain for the next 14 days, the trade may be anticipating further declines in condition ahead, and therefore unwilling to give up the weather premium the market has developed over the past several weeks.
Sugar prices have been resilient in the face of a bearish global supply outlook as they have bounced back from sizable pullbacks twice in the space of 2 1/2 weeks. The market has been unable to take out its early June high in spite of stronger energy prices, however, and may have trouble with sustaining this recovery move. A rebound in the Brazilian currency and stronger RBOB gasoline prices provided sugar with early carryover support.
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