Rain Slows Brazil Sugar Production
Too much rain in September and fears that rains will continue to slow Brazil production ahead has helped to support the market. White sugar prices in Europe are three times higher than a year ago as sugar processing is very energy intensive and high-priced energy has helped to drive prices up. December white sugar futures experienced a key reversal on Wednesday and this may be seen as a near term peak. March sugar moved from sharply lower to moderately higher on the session yesterday and experienced the highest close since July 20. Outside market forces shifted from very bearish to very bullish with a surge in the stock market and a sharp rally in energy markets helping to support new buying. The rally has left the market in an overbought condition. Thailand’s sugar production will likely rise 3% in 22/23 to 10.5 million tonnes from around 10 million a year earlier, according to the USDA Foreign Agricultural Service. Exports are expected to more than double in 2021/22 to 10 million tons, and will further increase to 11 this season because of larger exportable supply.
Ideas that global demand for cocoa will gradually improve from the low levels seen in the past year has helped to support. The technical action has improved as well and the market may see at least a temporary rally. December cocoa closed sharply higher on the session yesterday with an outside day up. The early selling pushed the market down to the lowest level since September 29, and the market bounced even before the turnaround in outside market forces. When outside forces turned bullish, buyers turned active. The rally occurred even with bearish European cocoa grind results which were especially poor for Germany. Cameroon and Nigeria have requested to join the Ivory Coast and Ghana Cocoa Initiative, which aims to negotiate for higher cocoa prices with one voice on world markets. This could provide at least some temporary support if the four countries make decisions together.
December cotton challenged the October 7, and 13 month low on the session yesterday before closing 279 points up from the lows of the day. Very bullish outside market forces with a surge higher in the stock market, a strong rally in energy prices and a sharp drop in the US dollar were all seen as bullish forces. However, the market still faces plenty of demand uncertainties if the global recession is deeper than current trade expectations. In this week’s USDA update, global cotton consumption was revised down by a whopping 3 million bales. In addition, US production, ending stocks and world ending stocks all came in bearish against expectations. Pakistan’s cotton output may drop 43% to 6.3 million bales for 22-23, according to the food ministry. Unprecedented monsoon rains and flash floods badly damaged crops and while Pakistan normally exports cotton, they may be active importers this year.
December coffee closed sharply lower on the session yesterday and the selling pushed the market down to the lowest level since July 25. Even a shift to a risk-on mode and the rally in most other commodity markets failed to help support. Long liquidation and talk of a very favorable flowering period for the Brazil crop helped to pressure. After timely rains in September, the crop has experienced very widespread and successful flowering, and also follow-through rains to support a great start for next year’s crop. Improved exports from Brazil has also been seen as a bearish force and has helped to pressure the market ahead of harvests getting under way in Central America and Colombia. The uncertain demand impact of the Russia/Ukraine war on the economy of Europe could lead to a decline in demand.
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