Recovery Move in Sugar
This week’s recovery move in the sugar market has recovered two-thirds of the losses it sustained during its 10-session losing streak in late October. While it has benefited from strength in key outside markets, sugar may also benefit from a positive shift in its near-term supply outlook. A 1% rally in the Brazilian currency to reach a 7-week high provided sugar prices with carryover support, as that eases pressure on Center-South mills to produce sugar for export. Indications that Brazilian ethanol demand may improve over the rest of this year provided a further boost to sugar prices early this week. Newly elected Brazil President Lula was an advocate for ethanol during his first period in office from 2003-2011. The India Meteorology Department said that their nation’s October rainfall was 47% above normal, and forecast November rainfall would be 23% above normal. India appears to heading for a second record high sugar production total in a row this season while Thailand’s output continues to improve.
While cocoa’s demand outlook remains uncertain, there have been some signs of optimism that should relieve some pressure on the market. When combined with recent bullish supply developments, cocoa prices may remain well supported during volatile action in global markets this week. Heavier than normal precipitations during the late stages of West Africa’s “rainy” season have underpinned cocoa prices as that could help to spread disease and mold to cocoa beans. A report that Nigeria’s September cocoa exports were more than 16% below last year’s total provided additional support to the cocoa market. The CEO of major global chocolate maker Barry Callebaut said that they do not expect a dramatic reduction in the global chocolate market even during an economic slowdown, which provided additional support to cocoa prices yesterday. After today’s close, the FOMC meeting results will include Fed guidance on US inflation prospects that will have a significant impact on cocoa’s North American demand outlook. This will be followed on Thursday by the European Central Bank’s latest monetary policy meeting results, and their post-meeting statements will include projections for Euro zone inflation over the next few months. High inflation leads to consumers pulling back on discretionary purchases such as chocolate, but indications that inflation will fall back should help to shore up cocoa’s demand outlook.
Ideas that China will soon exit their COVID zero policy, and that their economy will begin to recover helped to drive the market higher yesterday and overnight. The market appears to have put in a short-term low. December cotton closed limit up yesterday after falling to its lowest level since December 30, 2020 on Monday. Wheat, soybeans and corn were sharply higher on follow through from Monday’s rallies in the wake Russia suspending the Black Sea shipment agreement, and this may have spilled over into other ag markets like cotton. It is also likely that the market had gotten deeply oversold and due for a correction following its steady, 41% decline since August 29. Monday’s Crop Progress Report showed 55% of the US crop had been harvested as of Sunday, up from 45% the previous week and above the 10-year average of 47%. This suggests that the harvest pressure the market had been feeling may have played out.
While coffee prices have been unable to put together back-to-back positive daily results since October 4th/5th, the market continues to stay clear of last Friday’s 15-month low. While the demand outlook has been impacted by high inflation in many developed economies, coffee has bullish supply factors that can help to underpin prices. The Brazilian currency extended this week’s recovery move to reach a new 7-week high, which provided coffee prices with some support as that can help to ease pressure on Brazil’s farmers to market their remaining near-term coffee supply. Reuters is reporting that Brazilian farmers are starting to default on forward crop sales, and that could result in trade houses having to acquire coffee on the spot market. The market will have updated guidance on US inflation from the FOMC meeting results later today and on Euro zone inflation from the ECB early Thursday, and indications that inflation levels are subsiding should benefit coffee prices.
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