Recession Worry Raise Demand Concern
Cocoa has started September by breaking out of a tight consolidation zone to the downside as near-term demand concerns continue to weigh on prices. While there has been some debate over this week’s critical data release, cocoa demand has stayed fairly resilient in spite of a difficult global environment. Sluggish global risk sentiment, high inflation and slumping global equity have all combined to diminish the demand outlook for consumer discretionary items.
Coffee prices have been unable to regain strong upside momentum since the middle of last week, but they have been able to hold onto most of the sharp mid-August rally. Although the near-term demand outlook remains uncertain, coffee has bullish supply factors that should help to underpin prices near last Thursday’s 6 1/2 month high. Slumping global risk sentiment combined with high inflation for many developed economies may lead to a downtick in restaurant and retail shop consumption, and that has pressured coffee prices this week.
December cotton sold off sharply on Thursday, closing the gap it left on the open from August 15 and closing limit down. Worries about a global recession, especially in China, has raised concerns about cotton demand. The dollar broke out to new high for the move and reached its highest level since June 2002. This makes US cotton more expensive on the global market. Crude oil off sharply, which makes man-made fibers more competitive with cotton. Traders may also be getting anxious about a lack of news on the export front, with the weekly export sales report canceled for the second week in a row.
Sugar prices have maintained their coiling pattern into September, but were able to regain some strength in spite of significant weakness in key outside markets. Sluggish energy prices and a more than 1% decline in the Brazilian currency were sources of early carryover pressure on the sugar market, as that combination encourages Brazil’s Center-South mills to ramp up their sugar production at the expense of ethanol production.
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