Key Reversal In Cocoa

COCOA

Cocoa’s abrupt turnaround last Friday may set the stage for downside follow through early this week. With the market receiving both bullish supply and demand developments during the past few weeks, cocoa should stay fairly well supported on any near-term pullback. July cocoa experienced a negative daily key reversal. For the week, July cocoa finished with a gain of 53 points (up 1.8%) which broke a 2-week losing streak. A negative shift in global risk sentiment weakened the near-term demand outlook and put pressure on cocoa prices. On the supply side, West Africa’s mid-crop harvest is starting to speed up after a slower than normal start. Ivory Coast port arrivals are well behind last season’s pace while several West African growing nations have reported disease outbreaks this season. As a result, the cocoa market is expected to have a second global production deficit in a row this season.

COFFEE

After falling back from a six-month high during the second half of April, the coffee market started May by holding in a consolidation zone. There has been some recent bullish supply development that should help to underpin coffee prices early this week. Global risk sentiment remains subdued which put additional pressure on coffee prices as that may weaken out-of-home consumption demand. The Brazilian currency reached a 3 1/2 week high, which provided carryover support to the coffee market. There is a growing consensus that Brazil’s 2023/24 “off-year” Arabica crop will come in above last season’s “on-year” crop, and this has weighed on prices over the past few weeks. On the demand side, ICE exchange coffee stocks fell by 1,650 bags on Friday as they are on track for a fourth monthly decline in a row and are at their lowest levels since December. It is important to note that there has been no coffee going through the ICE exchange grading process in more than a month, which is a sign that end-user demand is improving.

COTTON

The USDA supply/demand report on Friday put US 2023/24 cotton production at 15.50 million bales versus an average expectation of 15.78 million bales and a range of expectations from 14.70 to 18.05 million and 14.47 million in 2022/23. The US numbers were bullish for old and new crop, with new crop coming in at the bullish end of expectations and old crop seeing ending stocks revised lower. The world numbers were bearish, with new crop ending stocks coming in near the upper end of trade expectations. The market traded sharply higher in the wake of the report. It gave back much of its gains by the end of the session, but it still closed higher on the day. West Texas saw some badly needed rainfall last week, which could pressure new crop cotton.

SUGAR

Sugar’s coiling action last week kept the market at the top end of its 2023 zone. An inability to climb above its late April high may be an early sign that sugar prices are getting top-heavy at their current levels and are vulnerable to a sizable near-term pullback. For the week, July sugar finished with a loss of 10 ticks (down 0.4%) which was a second negative weekly result in a row following 6 “up” weeks in a row. The likelihood that an El Nino weather event will occur during the early stages of India’s monsoon season continues to provide underlying support to the sugar market. Out of the 14 growing years since 1957 that a drought has occurred, 13 of them have coincided with an El Nino event. The USDA forecast 2023/25 US sugar production at 9.22 million tons (8.36 million tonnes) which would be a slight decline from the 2022/23 season, but also projected 2023/24 US sugar stocks/usage at 11.3 versus 13.5 for the 2022/23 season.

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