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More Upside Momentum for Cocoa


Cocoa prices were able to regain and sustain upside momentum going into the weekend. While prices at multi-year highs leave the market vulnerable to profit-taking, cocoa continues to receive bullish supply/demand developments that are fueling this month’s upside move. For the week, July cocoa finished with a gain of 82 points (up 2.7%) which was a second positive weekly result in a row. A slower than expected start to the region’s mid-crop harvest has led to tight near-term West African supplies which have underpinned cocoa prices this month. Many of those newly-harvested mid-crop beans are too small and are not of sufficient quality to be acceptable for exporters, and that has further tightened West African exportable supply.


The market experienced an impressive break-out up on Friday and looks poised for more buying. While Brazil appears to be heading for larger production this season, a rebound in coffee’s demand outlook can help the market maintain upside momentum. For the week, July coffee finished with a gain of 9.15 cents (up 5.0%) which was a second positive weekly result over the past 3 weeks. It has been more than a month since any coffee went through the exchange grading process, which indicates a further decline in stocks that has underpinned coffee prices over the past few weeks. In addition, tight global supplies of Robusta coffee have provided carryover support to the New York coffee market.


July cotton closed moderately higher on the session Friday but well off the highs of the day. Earlier in the session the market had traded to its highest level since February 7. The market closed 6.19 higher for the week. The market drew some support from a weaker dollar and stronger equity and energy markets earlier in the session, but that support faded when it was learned that members of the House and representatives of the Biden Administration had paused their talks regarding a debt limit deal on Friday. The market seemed to defy indications of gradually improving soil moisture conditions in west Texas last week, with the weekly Drought Monitor showing areas moving from “extreme” to “severe” drought.


While sugar was able to put the brakes on a potential downside breakout move, the market will start this week well below its multi-year high from late April. Unless it can find fresh support from key outside markets, sugar may resume at least a downside correction. For the week, July sugar finished with a loss of 44 ticks (down 1.7%) which was a third negative weekly result in a row. An early rebound in energy prices provided carryover support as that would provide a boost to ethanol demand following the Petrobras gasoline pricing change last week. In addition, weather over Brazil’s major cane-growing region should help to speed up this year’s harvesting and crushing operations.


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