Huge Recovery Move for Cocoa
Cocoa will start today’s action on-track for a sizable weekly gain, but has run out of upside momentum after a huge recovery move. While global risk sentiment is on the mend after bank anxiety and the FOMC meeting, cocoa remains vulnerable to a pullback. Global risk sentiment had a volatile day but was able to regain a positive tone, and that should benefit cocoa prices as that will help to improve its near-term demand outlook. Many West African growing areas have daily light rainfall in the forecast through late next week as they shift out of their dry season, and that should benefit this year’s mid-crop output. A negative key daily reversal is seen as a short-term bearish technical development.
Coffee prices have been unable to shake off near-term demand concerns and remain in consolidation. There have been recent bullish supply developments that have underpinned prices and if global risk sentiment can continue to improve, coffee prices may bounce. A pullback in the Brazilian currency as well as a shift towards more normal seasonal weather over Brazil’s Arabica growing regions weighed on coffee prices, and that offset any support from a mild rebound in global risk sentiment. While there is optimism in the market that Brazil’s 2023/24 Arabica crop will come in above this season’s total, Colombian production is having a slow recovery from several seasons in a row with a La Nina weather event. Restaurant and retail shop consumption will receive a boost from stronger global risk sentiment, and that can help coffee prices to regain upside momentum.
May cotton closed lower yesterday and the market is down to the lowest level since November 2nd this morning. The market is pressured by a stronger dollar and weaker crude oil. This was despite a strong showing in the weekly Export Sales report, which showed US cotton export sales for the week ending March 16 came at 331,532 bales for the week ending March 16, up from 238,295 the previous week and the highest since February 16. Cumulative sales for 2022/23 have reached 11.179 million bales, down from 13.963 million a year ago and the lowest for this time of year since 2015/16. Sales have reached 99.4% of the USDA forecast for the marketing year versus a five-year average of 97.3%. Talk that US cotton weather will be much improved from last year as El Nino boosts moisture levels is seen as a bearish force.
Sugar prices could not build onto this week’s recovery move as they have been unable to sustain momentum in either direction. With key supply data coming out at midsession, sugar could be vulnerable to a week-ending pullback. A pullback in the Brazilian currency may encourage more Center-South sugar production for the global export market, while a more normalized weather pattern over Brazil’s Center-South cane growing regions should help out with harvesting and crushing. A portion of this season’s crop went unharvested, so many Center South mills are expected to start this year’s operations earlier than normal. In contrast, a significant amount of India’s mills has finished their operations for the 2022/23 season due to a lack of cane, which makes it more likely that India will not have additional exports. If the Unica report shows a surprisingly large cane crush number, it could signal that more mills than expected will start their crushing during the second half of March.
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