Cotton Remains in Uptrend
The market remains in a short-term uptrend and closed higher yesterday led by weakness in the US dollar, strength in metal markets and a jump in grain prices. Export sales news has come in better than expected over the past month and traders await the weekly sales report for this morning. China manufacturing data came in better than expected and this provided support for the market as well. Manufacturing activity expanded at the fastest pace in more than a decade in February, as China virus restrictions were lifted which may have boosted their economy. Cotton Outlook sees world 2023/24 cotton production near 25.398 million tons, 2% higher than 22/23. World consumption estimates were revised down by 3.6%, to 24.553 million tons for the 2023/24 season.
The cocoa market received bullish news from both the supply and demand side of the market which helped prices to climb up above their February highs to a new 26-month high. The International Cocoa Organization (ICCO) released their latest quarterly supply/demand update which projected the 2022/23 season would have a global production deficit of 60,000 tonnes, which is the first back-to-back deficits since the 2013/14 season. On the demand side, the ICCO forecast 2022/23 global grindings at 5.027 million tonnes, which would be a 30,000 decline from last season but would be the second highest total on record. The five largest Euro zone grinding nations had a combined decline of 30,000 tonnes from last season, while the 5 largest “origin” grinding nations had a combined increase of 25,000 tonnes from last season. A large portion of the 2021/22 and 2022/23 seasons have high inflation readings for many developed economies, so having the 2 highest global grindings total indicates that cocoa demand has been resilient.
The market managed to hold shallow support on the break yesterday and closed strong. Coffee prices continue to face concern with near-term demand as the market continues to fall back from last week’s highs. After a sluggish start to the 2022/23 season, there has been a notable recovery in Central American exports which has put pressure on the coffee market. Costa Rica’s February coffee exports were 18.5% above last year’s total, and that has put their 2022/23 exports only 3.1% behind last season’s pace. On the other hand, Brazil’s February coffee exports came in at 122,402 tonnes (2.04 million bags) which is well below last year’s 208,379 tonnes (3.471 million bags) which reflects their poor 2022/23 production. The Brazilian currency regained more than 1% in value, which helped to keep further coffee price losses in check.
Sugar prices experienced an upside break-out which keeps the market in a steady uptrend. While key outside markets have provided carryover support, sugar has benefited from bullish supply developments to lift the market further into new high ground. May sugar rallied up to a new 6-year high. Analysts and trade groups have been reducing their estimates for India’s 2022/23 sugar production, and that has provided underlying support to the market as there is a growing consensus that it will come in below last season’s output total. Energy prices were able to rally after the weekly EIA stocks report which provided carryover support to the sugar market as that should provide a boost to ethanol demand in Brazil and India. Brazil’s gasoline fuel tax hike could lead to Center-South mills increasing ethanol’s share of cane crushing when they resume operations later this month. Many Center-South mills will start operations by late March in order to crush cane that was unharvested last season.
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