Sugar Exports on the Rise
While sugar prices continue to hold in close proximity to 3-month highs, they have posted 3 negative daily results in a row. A rebound in crude oil and RBOB gasoline prices helped to lift the sugar market off of its lows yesterday, as that can help to shore up ethanol demand prospects in Brazil and India. However, expectations that India will see record high production during the 2022/23 season continue to weigh on sugar prices. While this year’s monsoon rainfall was 6% above their long-period average, India’s rainfall so far in October has been more than 80% above average. Although this will delay the start of harvesting and crushing by at least 2 weeks, rainfall over the past 5 months should increase the chances for India to have their 2022/23 sugar production reach a record high total above 36 million tonnes. As a result, India, Thailand and Brazil are expected to see their 2022/23 sugar exports increase from the previous season.
The hook reversal is impressive and it looks like a short-term low may be in place. While demand concerns remain a front and center issue, cocoa may be able to maintain momentum in front of critical demand data released today and tomorrow. European and US equities, the Euro and the British Pound all sustained heavy losses that were sources of carryover pressure. However, indication that a lack of fertilizer and pesticide use will negatively impact West African production this season may have helped support. Both Europe and North America have very little domestic sourcing for cocoa beans. There has been a longer-term increase of origin grindings (where beans are processed in the nation they were grown), which will tend to reduce grindings total in Europe and North America.
December cotton closed down the 4.00 cent limit and traded down to an 18-month low yesterday, as traders remain convinced that consumers will back away from cotton products as food and energy take a priority in consumer budgets. Discretionary goods like clothing could drop off sharply in the US, Europe, and Asia. Open interest has been in a steep uptrend for more than a month as fund traders and global money managers appear to want to be net short cotton with a potential for global recession ahead. Big crops reported recently for Brazil and for India have added to the bearish tone, and the active harvest in the US could pressure the cash market as well. Another surge higher for the US dollar plus more weakness for the stock market were also seen as bearish forces.
Coffee prices have extended the downside breakout move to a new 2022 low. December coffee fell to a 13-month low and a seventh negative daily result in a row. The Brazilian currency was unable to build onto this week’s recovery move, and that put carryover pressure on the coffee market. In addition, further evidence of high inflation from the latest UK and Canadian CPI results weighed on coffee prices as that may diminish restaurant and retail shop consumption prospects. While Brazilian Arabica growing areas have seen widespread flowering in recent weeks, coffee trees have also had drier than normal conditions since mid-2020. With an “off-year” crop on the way, Brazil’s 2023/24 Arabica production is unlikely to have a sharp increase from this season’s output. Coffee is technically oversold and a 10% price decline between measuring dates, has likely seen a sharp reduction in its net spec long position as well.
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