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Coffee Undervalued at Current Price


The market lost more than 21 cents in value (down 9.7%) in just three sessions. Even with reports of good Brazilian flowering over the past few weeks, coffee seems undervalued at current price levels. December coffee closed sharply lower Friday and dropped down to the lowest price level since July 15. Improved weather for Brazil combined with more aggressive export activity in the past month were two key factors for the selling pressure last week. Concerns about consumption were given additional weight with the surge in inflation, as that could result in consumers cutting back on their restaurant and retail shop purchases. A large portion of coffee demand comes from at-home consumption which has seen a notable increase since the start of the COVID pandemic. ICE exchange coffee stocks are on track for a sixth monthly decline in a row and have reached their lowest level since May 1999. Even with high inflation, 2022/23 global coffee consumption is expected to reach a record high.

coffee beans in cup


Cocoa prices were able to finish last week at the upper portion of their July/October trading range despite disappointing third quarter European grinding results. This would indicate that cocoa’s ongoing demand issues have been priced into the market, and that a shift in focus towards West African production can help support. High inflation levels in many nations have weighed on cocoa prices as that likely to reduce purchases of discretionary items such as chocolates. Concerns about a slow start to the Ivory Coast harvest have provided some underlying support to cocoa prices, and that could put additional emphasis on the latest weekly Ivory Coast port arrivals total released early today. There have been periods of heavy rainfall over recent weeks, and that has resulted in delays to harvesting, drying and transporting beans to port facilities. Fertilizers and pesticides have unaffordable prices this year which has resulted in reduced use by many West African cocoa farmers.


December cotton garnered some support from the weekly export sales report on Friday, but it failed to hold those gains as longer-term demand concerns persist. The report showed US cotton export sales for the week ending October 6 at 144,820 bales for the 2022/23 (current) marketing year and 34,816 for 2023/24 for a total of 179,636. Cumulative sales for 2022/23 have reached 8.285 million bales, up from 7.617 million a year ago and the highest for this time of year since 2019/20. China has the most commitments for 2022/23 at 1.825 million bales, followed by Pakistan at 1.601 million and Turkey at 1.117 million. Sales are running well ahead of pace, but traders worry that demand will be cut off if there is a global recession next year. The dollar recovered on Friday, and that does not bode well for US exports.


Sugar prices have maintained an upward bias through choppy action over the past few weeks as the market has found support from recent bullish supply news from Brazil. The market is technically overbought and unless there is a positive turnaround in key outside markets, sugar is vulnerable to a pullback. For the week, March sugar finished with a gain of 0.9% which was a fourth positive weekly result in a row. Continued concerns with the slow pace of cane harvesting and sugar production in Brazil was a major source of strength. Energy prices have been sluggish while the Brazilian currency has fallen below its early October highs, and that combination will encourage Brazil’s Center-South mills to shift some of their crushing from ethanol production over to sugar production. The Commitments of Traders report for the week ending October 11th showed Sugar Managed Money traders were net long 78,995 contracts after increasing their already long position by a whopping 63,903 contracts in just one week.


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