Sugar Market Vulnerable
A rebound in the Eurocurrency provided cocoa with underlying support as that helped to soothe near-term demand prospects from a region that accounts for one-third of all global cocoa processing. In spite of coronavirus restrictions being underway by the end of March, first quarter European grindings showed a modest year-over-year increase, were the highest first quarter grindings and the second highest total for any quarter since European Cocoa Association records began in 1999.
While a bearish supply outlook continues to weigh on the market, the outlook for improving demand could be the catalyst for a recovery move. A sizable pullback in the Brazilian currency was a major source of pressure on coffee prices as it may encourages Brazil’s coffee farmers to market their near-term supply to foreign customers.
December cotton experienced follow through selling after Monday’s hook reversal, and this helps to confirm that a near term top may be in place. Uptrend channel support is back at 57.72. The weather forecast remains threatening, but traders expect the USDA report on Thursday will remind traders of some very hefty ending stock expectations for the 2020/21 season.
Key outside markets have been able to offset bearish supply outlooks from Brazil and India over the past few weeks. With the market already more than 10% higher for the month of June so far, sugar remains vulnerable to a near-term pullback if those outside markets and global risk sentiment turn negative. Energy prices were able to find their footing after Monday’s pullback, and that gave sugar prices a boost as it should help to improve the near-term ethanol demand outlook.
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