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Cotton Trades to Lowest Levels in A Year

COTTON

Selling dried up on Friday after the market traded to its lowest level in a year, and it closed higher on the day. The market appears oversold enough for at least a technical bounce. The open interest continues to increase and this may be money managers who want to hold shorts for cotton during recession. There were reports that mills in Pakistan were cutting back on production due to a short crop this year. This would appear to bode well for US exports. India is seeing heavy showers ahead of harvest for summer-sown crops, including cotton. Some damage has been reported, and conditions could worsen. For the USDA monthly supply/demand report on Wednesday, the average trade expectation for US 2022/23 production is 13.34 million bales, with a range of expectations of 12.80 to 13.65 million and compared to 13.83 million in the September report.

cotton bud up close

COCOA

After rallying 230 points above its late September low (up 10.5%), cocoa’s near-term demand concerns have put brakes on its September/October recovery move. With critical inflation and grindings data over the next few sessions, cocoa is vulnerable to increased selling. The first weekly reading for this season’s Ivory Coast port arrivals came in far below the comparable period last year, in spite of a sizable increase in their 2022/23 main crop minimum farmgate price, and that provided cocoa with early support. However, cocoa’s demand concerns flared up once again due to a negative shift in global risk sentiment and sluggish key outside markets, and that put the cocoa market under pressure later in the day. There will be critical readings on US PPI and US CPI later this week and if both extend their current pullback from 40-year highs earlier this year, it may help to soothe demand concerns for many discretionary items such as chocolates.

COFFEE

Coffee’s coiling price action continues to point towards a trend decision early in the fourth quarter. With the market somewhat resilient to sluggish global risk sentiment, coffee should benefit from a bullish supply outlook and may be setting up for an upside breakout. Hurricane Julia may result in damage to Central American coffee trees, and that provided the market with early support. The current La Nina weather event has had a negative impact on coffee production in Brazil (drier than normal conditions) as well as Colombia (heavier than normal rainfall), with both nations accounting for more than half of global Arabica output. ICE exchange coffee stocks were unchanged on Monday and have only fallen 587 bags over the past 5 sessions. ICE exchange coffee stocks remain at their lowest levels in more than 23 years, however, and they have fallen 1.526 million bags (down 78.6%) over the past year.

SUGAR

The lower close for March sugar after first hitting the highest level since July 21, and also after hitting key resistance at 18.73 would suggest a short-term peak is in place. The supply fundamentals would suggest the market will need to absorb a significant global production surplus for the coming season. The surge higher last week was triggered by hopes that gasoline prices would continue to soar around the world, and that this would spark a shift to increasing ethanol production, and less sugar production from key countries like Brazil and India. This seems less of an issue given the sharp break in energy. Sugar prices found early support and rallied to a 10 1/2 week high yesterday, but came under pressure late in the session. Brazil’s Center-South cane-growing regions will have rainfall return to the forecast for late this week, which will slow down harvesting and crushing and provided an early boost to sugar prices. Crude oil and RBOB gasoline fell sharply from early highs down into negative territory, however, which will diminish ethanol demand and weighed on the sugar market early this week.

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