Sugar Finishes With Modest Gain
March sugar was slow to react to Thursday’s risk-on mood, but it gapped higher overnight to trade to its highest level since July 18. The market first had to overcome some bearish supply news. Following a strong day on Wednesday, the market rebounded from early pressure on Thursday to finish with a modest gain. A 3.5% decline in the Brazilian real put significant pressure on the sugar prices, but a rebound in crude oil and gasoline lent support. The Brazilian trade group Unica released its latest supply report, which showed Brazilian Center-South sugar production during the second half of October at 2.116 million tonnes, 145% above year-ago levels. Cane crush was 85% above last year, and ethanol production was up 49%. Sugar’s share of crushing was 48.5% versus 37.0% last year. This put sugar’s 2022/23 full season crushing share slightly ahead of 2021/22. Center-South domestic ethanol sales during October came in 6.8% above last year. Brazil’s currency could remain under pressure from domestic fiscal concerns, but an extended recovery in crude oil and gasoline could help shore up ethanol demand and provide sugar with support. The decline in EU sugar production for 2022/23 also lends support.
March cocoa made a new high for the move overnight as the dollar continued to weaken on the euphoria from the lower-than-expected CPI readings yesterday. Cocoa has had only had one negative day in the past nine sessions and is on-track for its largest monthly gain in two years. The market has become technically overbought, but if demand concerns continue to be soothed, it could extend its rally. The lower-than-expected US CPI report yesterday sparked ideas that global inflation may have peaked, driving equity markets sharply higher and the dollar sharply lower. Ideas this would be a huge benefit for the demand for discretionary items such as chocolate provided a boost to cocoa prices. Huge gains for the euro, British pound, and European and US equity markets all lent carryover support. Ongoing supply issues in West Africa are also supportive, with many farmers unable to afford or even acquire fertilizer and pesticides for their cocoa trees. Ivory Coast port arrivals are well behind last season, due in part to a strike by dockworkers at the port of San Pedro.
March coffee moved higher overnight, continuing Thursday’s rally, but it was back near unchanged this morning. Since the market began its nearly 60-cent selloff in late September, there have been two recovery moves of l0 cents or more but with no follow-through. The third time may be the charm, as the coffee has received some badly needed help on the demand side of the equation. It was a major beneficiary of the “risk on” mood seen across financial and commodity markets on Thursday, as it rallied from a 16-month low to post a strong gain and a positive technical reversal. A rebound in global risk sentiment following a much lower than expected set of US CPI readings helped soothe the demand concerns that have been weighing on the market. High inflation in developed economies has weakened the outlook for restaurant and retail shop consumption and has kept the market mostly on the defensive during the fourth quarter. But it was able to disregard a 3.5% selloff in the Brazilian currency that could encourage Brazilian producers to market their remaining coffee supplies. ICE exchange coffee stocks rose 6,805 bags on Thursday for a fifth increase in a row.
December cotton has been consolidating for the past four sessions and may be in position for another leg higher. The market experienced a mild setback this week after the USDA raised its 2022/23 US production and ending stocks estimates, but those numbers were coming from extremely low levels. The lower CPI number yesterday that pressured the dollar and supported many markets appeared to be lost on the cotton market, which closed near unchanged after spending the session inside Wednesday’s range. The sharply lower dollar should be supportive to cotton prices, as it makes US exports more competitive on the global market. Ideas that we may have reached a major inflection point in the fight against inflation could help cotton overcome its current demand concerns. The export sales report on Thursday was a bit disappointing relative to last week, with US cotton sales for the week ending November 3 at 145,795 bales for the 2022/23 (current) marketing year and 11,440 for 2023/24 for a total of 157,235. Sales have reached 73% of the USDA forecast for the marketing year versus a five-year average of 63%. The largest buyer this week was China at 57,279 bales, followed by Pakistan at 40,526 and Vietnam at 23,271.
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