Coffee Near-Term Demand Concerns

COFFEE

While coffee has had a bullish supply outlook for most of this year, near-term demand concerns have kept the market from sustaining upside momentum. Although the outlook for out of home consumption remains uncertain, it has improved enough that fresh supply-side news has driven the coffee market well above Monday’s low. The International Coffee Organization said that August global coffee exports were 1.9% below last year’s levels (in spite of an “on-year” Brazilian crop), which provided the coffee market with early support. Colombia’s coffee production during the past 12 months is less than 12 million bags which is the first time their 12-month production total has fallen below that level since July of 2014, and that continues to strengthen the coffee market this week. Brazil’s shift towards wetter weather may lead to increased flowering, but their coffee trees have had drier than normal conditions over the past 2 years which should limit the potential for any sizable production increase during the 2023/24 season. Brazil and Colombia account for more than half of global Arabica output, and both continue to have production issues.

COCOA

Cocoa prices will start today’s action 200 points above the late September low (a 9.1% recovery) as the near-term demand outlook has improved going into the fourth quarter. At the start of the 2022/23 season, however, cocoa should continue to find bullish supply developments as a major source of strength. While the Eurocurrency and British Pound sustained heavy losses, US equity markets rebound from early losses which should provide a boost to North American demand prospects. Ghana’s Cocobod secured their financing for 2022/23 cocoa purchases, which allowed them to increase their minimum 2022/23 main crop purchase price by 21% above last season’s level.

COTTON

December cotton closed sharply lower yesterday giving up all its gains from its rally on Tuesday and then some. The dollar recovered a good portion of its losses from Tuesday, and that was negative for cotton. Traders continue to worry about demand with a recession looming. US export sales have been on the low side for a couple of weeks. Last week’s report showed net sales of 71,759 bales for the week ending September 22 versus a 4-week average of 143,744. Cumulative sales for 2022/23 are the strongest they have been in four years, but they have fallen off recently. The market remains in a short-term oversold condition with stochastic readings near 12. Open interest remains in a steady uptrend which indicates that global money managers have been building a larger net short position since mid-September.

SUGAR

With a bearish supply outlook weighing on the market, sugar remains vulnerable to a sizable downside pullback. However, the technical action is positive. A sizable rally in crude oil prices after OPEC Plus agreed to cut their production by 2 million barrels per day provided the sugar market with carryover support. Brazil’s Center-South cane-growing regions will have rainfall on most days through the middle of next week that will slow down harvesting and crushing operations, and that provided sugar prices with an additional source of strength. The European Commission forecast EU 2022/23 sugar production will come in at 15.5 million tonnes, which would be 6.9% below last season’s output and due to smaller planted area as well as drought conditions in many growing areas this summer. The USDA reduced their forecast for Pakistan’s 2022/23 sugar production down to 7 million tonnes due to recent heavy flooding, but kept their 2022/23 sugar exports estimate unchanged at 1 million tonnes.