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Demand Concerns Pressure Coffee


Coffee has been pressured by near-term demand concerns fueled in large part by the negative shift in global risk sentiment this week. Unless a “risk on” mood redevelops later today, coffee is likely to extend its late April/early May selloff. A negative tone for global risk sentiment continued on Thursday with European and US equity markets extending their pullback, which pressured the coffee market as that may weaken out-of-home consumption prospects during the second quarter. Brazil’s 2023/24 Arabica harvest is underway, which has also weighed on coffee prices as fresh supply from than nation will reach the global export market by mid-year.


Cocoa prices have been resilient in the face of sluggish global risk sentiment and have lifted clear of Wednesday’s 3-week low. To avoid posting a second negative weekly loss in a row, however, the cocoa market will need to see some improvement with its near-term demand outlook. Ghana’s Finance Minister said that his nation may not reach their 2022/23 cocoa production target of 750,000 tonnes, and that provided underlying support to the market as they have not recovered from last year’s poor growing conditions as well as a lack of adequate fertilizers and pesticide use. Ivory Coast port arrivals are behind last season’s pace more than 1 month into the mid-crop season, which has also provided support to cocoa prices this week. European and US equity markets have had a rough start to May, and that has put carryover pressure on cocoa prices.


July cotton reversed direction on Thursday and rallied sharply, closing limit up on the day. Traders were encouraged by a strong export sales report for the second week in a row. The report showed US cotton export sales for the week ending April 27 at 231,274 bales for the 2022/23 (current) marketing year and 26,928 for 2023/24, for a total of 258,202. This was up from 214,032 the previous week and the highest since March 23. Cumulative sales for 2022/23 have reached 12.252 million bales, down from 14.723 million a year ago and the lowest since 2015/16. The US Drought Monitor showed a worsening of drought conditions in West Texas for the week ending May 2 with an expanding area of extreme drought (D3) from severe drought (D2) the previous week. In contrast, Kansas and Oklahoma saw improvement.


While sugar prices have lifted clear of Wednesday’s low, they remain on-track for their first negative weekly result since mid-March. Unless global risk sentiment and key outside markets regain considerable strength, sugar remains vulnerable to a week-ending pullback. Energy prices were able to grind out modest gains, and that provided carryover support to the sugar market as it may help to shore up ethanol demand in Brazil and India. Concern that a potential El Nino event could lead to India having a second production decline in a row during the 2023/24 season also provided support to the market.

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