Sluggish Global Risk Sentiment in Coffee
Cocoa’s demand concerns have been an ongoing issue for much of this year due to COVID-19 restrictions in many parts of the world. While this week’s developments have put them back into a front-and center issue again, potential supply-side disruption can help the cocoa market find its footing. December cocoa remained squarely on the defensive as it followed a gap-lower opening yesterday by dropping to a new 1 1/2 week low.
Coffee’s potential recovery move has run into the “double-whammy” of sluggish global risk sentiment and a negative shift in European fourth quarter demand prospects. News of several European national shutdowns was a notable source of pressure on the coffee market as that will erode near-term demand from a region which had seen improvement over the past few months.
The sweeping reversal and sharply lower close after trading up to the highest level since January 14 is a bearish technical development. Traders see the last of the poor weather hitting the cotton crop over the next few days and this leaves the market vulnerable to long liquidation selling.. Hurricane Zeta is expected to make landfall in Louisiana and the rains it brings could damage cotton and delay the harvest.
Sugar prices have avoided the “risk off” mood seen in many commodity markets, and did so in spite of significant carryover pressure from key outside markets. Although it is finding some bullish supply developments from India, it continues to have an overall bearish global supply outlook which should have sugar becoming increasingly top-heavy at current price levels.
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