Cotton Remains in Steady Uptrend
March cotton remains in a steady uptrend and closed higher yesterday. A weaker US dollar and hopes that export news will improve helped to support. Ending stocks are already projected to increase to 4.2 million bales as compared with 3.75 million last year and 3.15 million the previous year. Chinese markets are closed for the Lunar New Year holiday, so traders do not expect much demand news this week. Exports are already projected to drop to 12 million bales from 14.6 million last year and even with the sharp drop, cumulative export sales (as of last week’s update) have reached 9.068 million bales, down from 11.267 million last year and the lowest for this point in the season since 2016/17. Sales have reached 75% of the USDA forecast for the entire year as compared with the five-year average for this time of the year at 80%.
While the market continues to face near-term demand concerns, cocoa prices will continue to be underpinned by bullish West African production developments. Forecasts calling for weekend rainfall over West African growing areas weighed on cocoa prices early yesterday, as that should provide some relief to the region’s cocoa trees. Keep in mind that West Africa’s “dry” season will continue through March while daily high temperatures should stay above 90 degrees Fahrenheit through month-end. While soil moisture levels are still thought to be in good shape, these conditions should have a negative impact on this season’s West African cocoa production. In addition, moderate rallies in the Eurocurrency and British Pound provided carryover support to the cocoa market as that should help European grinders acquire near-term supplies. Europe has seen their grinding totals come in below last year for two quarters in a row, but the region has stronger currencies and lower inflation that should benefit demand early this year.
Coffee prices have rallied more than 20 cents above their January low and are less than 5 cents away from a positive monthly result. While demand concerns continue to be a source pressure, coffee may be able to maintain upside momentum. The Brazilian currency rose by more than 1.2% in value, which benefits the coffee market as it eases pressure on Brazilian farmers to market their remaining near-term supply. The build-up of ICE exchange coffee stocks since their 23 1/2 year low in late October has reflected lukewarm European out-of-home consumption as most of those stocks are stored in Euro zone warehouse. European and US inflation is in the early stages of an extended pullback, and that should help to shore up restaurant and retail shop coffee demand in both regions.
With 4 sessions left in January, the sugar market is back on-track for a positive monthly reversal. While it continues to receive carryover support from key outside markets, sugar also needs bullish supply developments to finish this month on an upbeat note. An extended recovery move in the Brazilian currency should ease pressure on Brazil’s Center-South mills to produce sugar for export, which in turn provided the market with underlying support. The Petrobras gasoline wholesale price hike has been a source of additional strength to the sugar market as that should give a boost to Brazilian ethanol demand. The Unica Center-South supply report for the first half of January will be released at midsession, which is expected to show relatively small totals for crushing and sugar production.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.