Coffee Looks for Improving Demand
Coffee prices continue to be weighed down by out-of-home demand concerns, particularly in Europe. The market has fallen back into technically oversold price levels, but will need to see signs of improving demand in order to find some support. March coffee remains on the defensive and reached a 16-month low. ICE exchange coffee stocks increased by 20,079 bags on Tuesday for a third daily increase in a row. However, there are more than 204,000 bags waiting to be graded at the port of Antwerp for inclusion to ICE exchange coffee stocks, and that remains a major source of pressure on the coffee market. The majority of ICE exchange coffee stocks are located in Euro zone warehouses (Antwerp, Hamburg and Bremen), so this recent build-up of stocks points towards a possible pullback in out-of-home Euro zone coffee demand. Euro zone inflation levels hit a record high in their latest reading, which reflects increased costs for regularly purchased items and leads to cutback in discretionary purchases such as restaurant and retail shop coffee consumption. The Brazilian currency fell to a 1-week low, which also pressured coffee prices as that encourages Brazil’s producers to market their remaining coffee supplies to foreign customers.
Cocoa prices have only had one negative daily result during the 6 sessions of November so far, and have lifted well above the July/November consolidation zone. The market remains vulnerable to a negative shift in risk sentiment, but cocoa has bullish supply/demand factors that can help to underpin prices. Dockworkers at the Ivory Coast port of San Pedro were on strike and blocked the flow of cocoa beans to export terminals, which provided strong support to the cocoa market as this could result in quality issues for beans that were on trucks for several days without protection from heat or rainfall. Concern that a lack of adequate fertilizer and pesticide use for this season’s main crop will negative impact West African full-season production has also provided support. Ivory Coast cocoa bean exports during the 2021/22 came in 6.5% below the 2020/21 total while their cocoa products exports were 13% higher than the 2020/21 total, which is additional evidence of the growth in “origin” grindings where cocoa beans are processed in the nation they are grown. Strength in the Eurocurrency, European and US equity markets provided carryover support to cocoa, but that could evaporate quickly if there is a negative shift in global risk sentiment after a clearer picture of US election results is known.
December cotton closed moderately higher yesterday after trading to its highest level since October 11. The dollar was lower for the third straight day, which lent some support to cotton. The trade is talking about supply problems resulting from smaller crops in the US (from drought) and in Pakistan and Australia (due to flooding). There are reports of strong yields in the Delta and Southeast, in contrast to Texas, which has had sharply reduced yields from a long-term drought. For the USDA supply/demand report on Wednesday, the average trade expectation for US 2022/23 cotton production is 13.62 million bales with a range of expectations from 13.42-13.81 million, which would be down from 13.81 million in the October report. US ending stocks are expected to come in around 2.73 million bales (range 2.50-3.00 million) versus 2.80 million in October. World ending stocks are expected to come in at 88.04 million bales (range 87.00-90.00) versus 87.87 in October.
The close above 18.91 for March sugar (50% of the April 13th to September 19th break) is a bullish technical development. Sugar prices were able to follow-through on Monday’s late rebound and climbed up to a 3 1/2 month high. News that the French farm ministry cut their 2022/23 sugar beet forecast by 2.2% from their October estimate provided a boost to sugar prices. Early trade forecasts that Brazil’s Center-South mills pulled back on sugar’s share of crushing during the second half of October provided additional support to the sugar market. A key Brazil sugar and fuel producer (Sao Martinho) indicates much stronger demand for ethanol out of Europe this year due to their energy crisis. Sugar output in Brazil’s Center-South region the second half of October is expected to come in near 1.8 million metric tonnes (1.5-1.9 range), according to a survey by Bloomberg. Unica is expected to release the official numbers this week. Sugar cane crushing in Brazil in 2023-24 is expected to reach 620.7 million tonnes, up 3.4% from this year, according to consulting firm Safras & Mercado. Sugar exports should be up 13% and Ethanol production is expected to decrease by 2.7%.
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