Coffee Needs Better Demand Prospects
Although the supply outlook remains supportive through the first quarter of next year, coffee needs to see improved demand prospects before it can sustain upside momentum. ICE exchange coffee stocks rose by 14,235 bags on Monday, but the amount of bags waiting to be graded at the port of Antwerp (over 541,000) is now significantly larger than the current total ICE exchange stocks levels (just over 468,000). This has been widely seen evidence of sluggish European near-term demand, where a large portion of consumption takes place in restaurants and retail shops which has been diminished by record high Euro zone inflation levels. Below normal rainfall over Brazil’s main Arabica-growing regions last week helped the coffee market bounce. The current NOAA forecast calls for the current La Nina weather event to have a 76% chance of continuing through February before conditions return to normal over the following months.
March cocoa followed through on last Friday’s outside day down by remaining under pressure all day and finishing Monday’s trading session with a moderate loss. The dockworker strike at the Ivory Coast port of San Pedro has ended, which pressured the cocoa market as that will increase the flow of that nation’s cocoa beans into the global export marketplace. In fact, the latest weekly Ivory Coast port arrivals total came in well above the comparable period last year, although this season’s total remains well behind last season’s pace. While major European stock markets finished the day on an upbeat note, US equities, the Eurocurrency and the British finished Monday under pressure as weakness in those key outside markets may weaken cocoa’s near-term demand outlook. A group of major Ivory Coast cocoa processors said that their October grindings were 8.6% above last year’s total, which reflects improving global demand as the vast majority of their nation’s cocoa production enter the global export marketplace.
December cotton closed sold off yesterday day back to the bottom of last week’s range but strong gains for Asia stock markets helped support overnight. Hawkish comments from Fed members dashed traders’ hopes that the Fed would start to ease back on its tightening policy, and the dollar strengthened. Those hopes had emerged last week with a softer than expected CPI reading, and the dollar sold of sharply last week, boosting trader expectations for US exports. The Chinese government took steps last week to ease some their Covid restrictions, but a surge in cases over the weekend has lowered expectations for any additional easing anytime soon. This was another disappointment for cotton traders who expected China to buy more US cotton once their economy recovers. The weekly Crop Progress report showed 71% of the US cotton crop was harvested as of Sunday, up from 62% the previous week and a five-year average of 64%.
Sugar prices have extended their winning streak to 5 sessions in a row, and have regained more than 12% in value since the end of October. While 4 of the top 5 sugar producing nations (accounting for 59% of the world’s total) are expected to have larger output this season, near-term supply issues have helped to fuel sugar’s November rally. March sugar reached a new 5-month high in spite of Crude oil posting sizable losses. There were reports that several mills in India were close to defaulting on contracts and were renegotiating with buyers. India is expected to export 9 million tonnes of sugar this season, so this news fueled near-term supply anxiety in the market. In addition, a moderate rebound in the Brazilian currency provided a boost to sugar prices.Warm and very dry weather over many growing areas have resulted in analysts dialing back their forecasts for 2022/23 EU sugar production, which in turn could lead to an increase in EU sugar imports this season.
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