Downside Breakout Move in Sugar
With most of the recent supply developments having a bearish tone, sugar prices may be setting up for a downside breakout move. A moderate pullback in crude oil and RBOB gasoline prices put carryover pressure on the sugar market this week as that may further weaken near-term ethanol demand in Brazil and India. However, the technical action is improving with the market near the high end of the recent consolidation zone. Brazil’s Presidential election is on Sunday, with the current government putting a cap on state gasoline fuel taxes that have eroded Brazil’s domestic ethanol demand.
Cocoa prices have been able to defy negative global risk sentiment to rally 135 points above Monday’s contract low, and remain on-track for a positive weekly key reversal. With the market ready to begin the 2022/23 season this week, cocoa has supportive supply developments that can help extend its recovery move. Both the Eurocurrency and British Pound rallied sharply yesterday, and that provided the cocoa market with carryover support as that will help European grinders with acquiring new-crop cocoa supplies.
Sluggish global risk sentiment could result in a volatile finish to the week, month and quarter and coffee has bullish supply factors that can underpin prices. Rainfall over Brazilian growing areas has led to flowering for their upcoming 2023/24 crop, which has limited the upside as that should have a beneficial impact on their upcoming production. The Honduras Coffee Institute forecast that their nation’s 2022/23 coffee exports will see a 17% increase over this season’s total, which also pressured the market as they are the largest Central American Arabica producer and the fourth largest global Arabica producer.
The market looks set to see at least a short-term technical recovery bounce. December cotton closed lower again yesterday, with the market approaching the July 15 low. The dollar was lower again, but so was the stock market, which adds to concerns about demand. Hurricane Ian was looking like less of a threat to Georgia’s cotton growing regions than it did on Wednesday, which may have also pulled support from cotton. Georgia is the second largest cotton producing state after Texas.
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