Sugar Vulnerable to Downside Move
Sugar prices remain inside of Friday’s wide-sweeping range, but were unable to benefit from a sizable rebound in its key outside markets and bullish India supply news. The sugar market is showing early signs that last Wednesday’s 7-month high will be a longer-term top and may be vulnerable to a sizable downside move. A sharp midsession selloff in crude oil and RBOB gasoline prices put carryover pressure on the sugar market, but energy prices had a rapid recovery move later in the day and regained most of those losses. In spite of Monday’s sizable recovery move, crude oil and RBOB gasoline need to reach much higher levels to shift a decent amount of Center-South crushing from sugar production to ethanol production. Czarnikow said that 2023/24 Center-South sugar production would reach 34.7 million tonnes which would be a 3-season high, while a Brazilian cane producer trade group forecast national Brazilian sugar production would come in 36.9 million tonnes this season and 37.2 million tonnes during the 2023/24 season.
Cocoa prices are showing signs of finding their footing after last week’s pullback, but the market continues to have trouble sustaining upside momentum. Unless there is a better global demand outlook, cocoa remains vulnerable to further downside price action. While the full-season total remains well below last season’s pace, the latest weekly reading for Ivory Coast port arrivals came in well above the comparable period last year, which helped to soothe near-term supply concern and weighed on cocoa prices. In addition, there were sizable pullbacks in the Eurocurrency and British Pound that put carryover pressure on the cocoa market. Indications that Covid restrictions are being re-imposed in several Chinese cities weakened cocoa’s Asian demand outlook. Asian grindings came in above last year’s total during the second and third quarters, so these developments will weigh on cocoa prices early this week. A negative shift in global risk sentiment will put more emphasis on cocoa’s demand prospects which continue to face headwinds from high inflation levels and the uptick in new Chinese Covid cases.
An outside-day higher close is a supportive technical development and with the market still technically oversold, coffee could see short-covering. The market starts this week near its lowest price level since May of 2021. The market should still have a net spec short position after Monday’s rebound, which could fuel additional short-covering. A more than 1% rebound in the Brazilian currency provided coffee with carryover support, as that eases pressure on Brazil’s farmers to market their remaining near-term supply. Reports of below normal rainfall over Brazil’s major Arabica growing region last week provided additional strength to coffee prices, as those areas have seen drier than normal conditions from the current La Nina weather event. There were reports that a major Brazilian coffee co-op forecast their upcoming 2023/24 “off-year” crop will be as weak as this season’s production. ICE exchange coffee stocks rose by 15,380 bags on Monday to reach a new 2-month high. However, the number of bags waiting to be graded fell by 8,810 bags, which means that the pace of grading has overtaken the flow of bags towards ICE warehouses.
March cotton fell to its lowest level in more than two weeks yesterday and closed limit-down. Traders continue to worry about Chinese demand, as large areas of Beijing and several other cities have been closed due to a spike in Covid-19 cases. The dollar was up sharply as well, which makes US cotton more expensive for overseas buyers. The weekly Crop Progress report showed 79% of the US cotton crop was harvested as of November 20, up from 71% the previous week, 74% a year ago, and the five-year average of 72%. Texas was 71% harvested versus 61% the previous week and 63% on average.
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