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Coffee in Position to Turn Up


Coffee prices remain on-track for a third negative monthly result in a row. While near-term demand concerns remain a source of pressure, coffee seems to be in position to turn up at any time. A negative shift in global risk sentiment weighed on coffee prices as that may weaken the out of home consumption outlook. Although high inflation may limit restaurant and retail shop purchases, there were some positive signs from early Black Friday and Cyber Monday sales figures that may help to shore up coffee’s demand outlook. The continued buildup of ICE exchange coffee stocks has been another source of pressure on the coffee market, as they increased by 7,915 bags on Monday to reach a 2-month high. The amount of coffee bags waiting to be graded fell by 11,900, however, which is more evidence that the wave of coffee towards ICE warehouses has subsided.

coffee beans in spoon


Cocoa prices have had trouble maintaining upside momentum over the past few weeks, but they were able to overcome a negative tone from key outside markets. If and when global risk sentiment can turn positive again, cocoa should be able to extend a recovery move. Sizable losses in the Eurocurrency and British Pound as well as a selloff in European and US equity markets weighed on cocoa prices as their weakness will diminish cocoa’s near-term demand outlook. On the other hand, positive early results from Black Friday and Cyber Monday sales data provided underlying support to the cocoa market early this week as they may indicate consumers are overcoming high inflation to purchases discretionary items such as chocolate. The latest weekly reading for Ivory Coast port arrivals came in well above the comparable period last year, and that has put their full-season arrivals total slightly ahead of last season’s pace. Many West African cocoa farmers did not use an adequate amount of fertilizers and pesticides this year due to high costs, however, and that will reduce the chances for 2022/23 main crop production to come in above last season.


The unusual sight of unrest in China over Covid lockdowns coming on top of record daily increases in Covid cases has increased trader concerns about demand. The dollar reversed and closed higher yesterday as a risk-off attitude sent global investors searching for a safe-haven. This makes US cotton less competitive on the world market and is also negative to cotton prices. Traders were already concerned about US exports after the weekly sales report on Friday showed China cancelling 109,546 bales. The Commitments of Traders report showed managed money traders were net sellers of 381 contracts of cotton for the week ending November 22, reducing their net long to 17,279, which is far from an overbought condition. The widespread selling trend on the part of speculators is negative for the near term.


The longer-term supply fundamentals still carry a bearish tilt, but the technical action yesterday was positive and the market held key support at 19.01 before closing higher on the session. Fears of weak demand from China helped to drive the market lower early. Ethanol demand may be on the rise in Brazil, and traders are also thinking that Brazil ethanol exports could improve if energy prices remain elevated. Sugar prices fell to a 2 1/2 week low early in the session yesterday, and then put together a late rebound to finish with a mild gain. Indications that Brazil’s Center-South sugar production will come in above last season’s total continues to pressure the sugar market. However, a severe turnaround for crude oil and RBOB gasoline prices after reports of a potential OPEC Plus output cut lifted sugar prices back into positive territory as that should help to improve ethanol demand.


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