Sugar Market Turns Lower
Elevated risk anxiety and a negative turnaround in key outside markets helped to turn the market lower yesterday. While several major producing nations are having lower output, the prospect of increased Brazilian supply over the next month may keep sugar on the defensive. A heavy selloff in crude oil and RBOB gasoline prices put significant carryover pressure on the sugar market as that should weaken near-term ethanol demand in Brazil and India. With Brazil’s Center-South domestic ethanol sales during February coming in below last year’s total, mills will need to see stronger energy prices to shift a large portion of their crushing from sugar production over to ethanol production. In addition, the Brazilian currency reached a 1-month low which also weighed on sugar prices as it gives those mills more incentive to produce sugar for export. Key outside markets have been losing strength which has put carryover pressure on the sugar market.
Cocoa prices have fallen more than 200 points below their early March highs as the market continues to be weighed down by near-term demand issues. With the supply side of the market continuing to have a supportive outlook, however, cocoa should be closing in on a near-term low. A negative shift in global risk sentiment following several US bank failures weighed on cocoa prices, as discretionary items are likely to have their near-term demand outlook diminished while risk anxiety remains elevated. The Eurocurrency and British Pound extended their recovery moves on Monday, which provided some measure of support to the cocoa market. Near-term supply remains tight in top-producing Ivory Coast, and that also helped to keep further losses in check. The latest weekly reading for Ivory Coast port arrivals was less than half of last year’s comparable total, and that put the full season total further behind last season’s pace.
May cotton recovered most of Friday’s losses on Monday and closed sharply higher. Ideas that the Fed might ease up on interest rate increases in the wake of the Silicon Valley Bank collapse pressured the dollar and supported bonds. The lower dollar may have lent support to cotton as this should makes it easier to sell US cotton on the world market. Lower interest rates make non-interest bearing assets like commodities more attractive to hold. Large cancellations by Pakistan of US cotton reported in last week’s export sales report has raised concerns about global demand. Pakistan has been the second largest buyer of US cotton for the current (2022/23) marketing year.
Coffee’s 2-session winning streak may be small in duration, but this rebound came in spite of a significant negative tone to global risk sentiment. If the demand outlook continues to improve, coffee should be able to extend its recovery move. The Brazilian currency fell to a 1-month low which put early pressure on the coffee market, as that may encourage Brazilian farmers to market their remaining 2022/23 supplies, while a rebound in global risk sentiment helped coffee prices to regain upside momentum late in the day. The head of Colombia’s coffee growers federation said that their nation’s coffee production during the first half of 2023 will come in around 5 million bags, which compares to 5.25 million over the first half of 2022 and is the third year in a row with lower first half production. The International Coffee Organization said that 2022/23 world coffee demand will exceed 2022/23 world coffee production by “a bit”.
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