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Hook Reversal in Coffee


Although it will be pressured by increasing Central American exports, coffee may see upside follow-through from yesterday’s hook reversal which broke a 7-session losing streak. Colombia’s February coffee production came in at 1.025 million bags, which was 10% above last year’s total and the first month with a year-over-year increase since August which put early pressure on the coffee market. Colombia’s 12-month running production total was 11.181 million bags which was the first uptick since August, but it is only 97,000 bags above January 9-year low of 11.084 million bags. A rebound in the Brazilian currency to a 1 1/2-week high provided coffee with carryover support as that eases pressure on Brazil’s farmers to market their coffee to foreign customers.


While key outside markets are providing carryover support, bullish supply developments have become a critical factor with cocoa climbing up into new high ground. A shift to wetter weather over West African growing areas as their dry season approaches its usual mid-March finish weighed on the cocoa market early yesterday. The latest weekly Ivory Coast port arrivals total came in well below the comparable period last year which has kept the full season total behind last season’s pace. Until the mid-crop harvest reaches full speed, near-term West African supply is likely to remain fairly tight. Wet weather over the next two weeks is likely to improve the prospects for West Africa’s mid-crop, but many trees in the region did not receive adequate fertilizer and pesticides last year. In order for Ivory Coast and Ghana to meet projections for 2022/23 full-season production coming in above last season, their mid-crops need to have a strong showing. Tight near-term West African supply have helped to underpin cocoa prices since mid-February.


May cotton closed higher yesterday as the market continued to consolidate inside last Thursday’s wide range. The dollar index was down for the second straight session on Monday, which is supportive to cotton. For this week’s USDA supply/demand report, the average trade expectation for US 2022/23 ending stocks is 4.26 million bales, with a range of expectations from 4.05 to 4.50 million. World ending stocks are expected to come in around 89.07 million bales versus 89.08 million in February. India has shifted from the world’s second-largest exporter to a significant importer on the world market as disappointing production and stronger demand has forced imports even with the relatively high price. The cotton Association of India has cut the expected output for the 22/23 season to 33 million bales, which is 925,000 less than its initial projections. Production fell to a decade low of 30.7 million bales for the 21/22 season.


While it has risen up to 6-year highs, sugar has been unable to shake off coiling price action as the market has not seen back-to-back daily results in the same direction since February 17th. An official from India’s Food Ministry said that it was possible for India to export an additional 1 million tonnes of sugar this season if full-season production met or exceeded their current forecast of 33.6 million tonnes. While this compares with India’s production of 35.9 million tonnes last season, this pressured the sugar market as many expected that India would hold off on additional exports this season. The official also said that India’s mills would divert 5 million tonnes of sugar towards ethanol production this season, which compares to 3.6 million last season. Crude oil and RBOB gasoline extended their March rallies to new 5-week highs while the Brazilian currency reached a 1 1/2 week high, all of which strengthened sugar prices as that should give a boost to Brazilian ethanol demand.


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