Sugar Vulnerable to Pullback
The sugar market continues to receive bullish supply updates from India which may be heading towards a sizable production decline from last season. Sugar prices remain well below their early February highs, however, and are vulnerable to a downside breakout from the recent consolidation zone. For the week, May sugar finished with a loss of 24 ticks (down 1.2%) for a first negative weekly result since early January. A sizable rebound in the Brazilian currency provided sugar prices with early carryover support as that eases pressure on mills to produce sugar for export. Crude oil and RBOB gasoline both dropped sharply to 1 1/2-week lows, however, which may weaken near-term ethanol demand and pressured the sugar market. The India Sugar Mills Association said that their nation’s sugar production is running 5.4% ahead of last season’s pace. There are indications that cane in the Indian states of Maharashtra and Karnataka is maturing early, which will significantly reduce their sugar yields. Many analysts have downwardly revised their forecasts for India’s 2022/23 sugar production, with some estimates falling below 33 million tonnes which compares to the record high 35.8 million tonnes produced last season. As a result, India’s government is increasingly likely not to allow any further sugar exports beyond the 6.1 million tonnes in their first export tranche.
May cocoa’s rally last week took the market well above its previous contract high from February 2022. While it is technically overbought and vulnerable to a near-term pullback, near-term supply issues may continue to underpin prices. For the week, May cocoa finished with a gain of 165 points (up 6.3%) which broke a 2-week losing streak. Market concern that several Ivory Coast firms may default on export contracts were given added weight by comments by an official from that nation’s Coffee and Cocoa Board late last week. In contrast to previous exporter defaults due to a lack of financing, this current threat is due to unusually tight near-term cocoa bean supplies. The latest weekly Ivory Coast port arrivals reading came in well below the comparable total last year. As a result, the full-season Ivory Coast port arrivals total is now minimally behind last season’s pace. Canada, the Euro zone and Germany will have CPI readings while the US has the latest PCE reading over the next 3 sessions, so inflation will remain a front-and-center issue for the cocoa market this week.
Coffee prices continue to face near-term demand concerns that may be given added strength from this week’s economic data in Europe and the US. With the market seeing evidence of tighter near-term supply, however, coffee should hold its ground above its early February high. For the week, May coffee finished with a gain of 11.10 cents (up 6.3%) which was a fifth positive weekly result in a row. ICE exchange coffee stocks fell by 8,374 bags on Friday, which was their seventh daily decline in a row. ICE exchange coffee stocks are now than 29,000 bags below their January month-end total with no coffee waiting to be graded, which increases the likelihood of their first monthly decline since October. A more than 1% rebound in the Brazilian currency provided coffee with additional support as that eases pressure on Brazil’s farmer to market their remaining coffee supply. Starting today, Brazil’s major Arabica growing region has heavy rainfall each day in the forecast through the end of February. While that will provide some relief from the drier than normal conditions seen during the La Nina weather event, it will also delay the use of fertilizers and pesticides and could also result in damage to coffee trees.
The market is following the grains this morning as traders see the break last week as too far, too fast. The longer-term demand fundamentals still look negative but short-term demand factors are positive and the outlook for a sharp drop in planted area may help support. However, traders see a jump in production even if planting drops. From a Bloomberg survey, traders expect cotton planted area near 11.4 million acres, 10.0-13.5 range, as compared with 13.8 million acres last year. The weekly export sales on Thursday came in at 216,900 running bales (RB) of cotton for 2022/2023 versus a marketing year high of 262,800 bales last week. May cotton closed at its lowest level since January 4 on Friday, following steep declines last week. The dollar index traded to its highest level since January 6 on Friday, which makes cotton less competitive on the world market. Crude Oil and stock markets fell sharply late last week. Demand concerns due to the current situation in Turkey after the earthquake is also weighing on cotton prices, analysts said.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.