Support for the Cocoa Market
Indications that global demand may be in better shape that earlier thought has helped to support to the cocoa market. For the week, December cocoa finished with a gain of 132 points (up 5.7%) which broke a 3-week losing streak. A lack of adequate use of fertilizers and pesticides will limit any growth in West African production this season, which provided cocoa prices with support. Although there has been an increase in leisure travel, many developed economies have seen their inflation gauges reach their highest levels since the early 1980’s. Third quarter grindings numbers from Europe and North America were down from a year ago, strengthening the argument for lower demand. On the other hand, Asia’s grindings were 9.5% above 2021 and were their second largest quarterly total on record. There has been a surge in origin grindings over the past few years, with the world’s largest producer Ivory Coast becoming the world’s largest processor with a record high total last year.
December cotton closed sharply higher for the fourth session in a row on Friday. This was after the market put it a spike bottom on Wednesday. This was the first time in four sessions the market did not close limit up, but limits were expanded. The market closed 15.76 higher for the week after the market closed on its low the previous week. This was the first week since September 6 that the market closed higher. Traders appear to have turned much more optimistic about cotton now that it has fallen 62.50 (47%) from its May high. There is some talk/hope that Chinese President Xi will ease come Covid restrictions that could boost demand. The dollar sold off sharply on Friday, and this lent support to cotton as well. The cotton market put in its lows on Monday, which was the day before the COT data was collected. This suggests that the numbers here represent extreme, oversold levels and have corrected that with the rally of the past four sessions.
For the week, December coffee finished with a gain of 5.95 cents (up 3.5%) which broke a 4-week losing streak. A more than 1.5% rally to a new 9-week high in the Brazilian currency provided coffee with carryover support, as that should ease pressure on Brazil’s farmers to market their remaining supply to foreign customers. In addition, expectations that the current La Nina weather event will negatively impact coffee production in Brazil and Colombia until the first quarter of 2023 gave additional strength to coffee prices. Colombia’s October coffee production came in at 888,000 bags, which was 12% below last year’s total. ICE exchange coffee stocks rose by 5,291 bags on Friday which was their first daily increase since September 8th. There are more than 171,000 bags waiting to be graded at the port of Antwerp. Keep in mind that of the 10,030 bags that were graded in Antwerp on Friday, 5,265 failed to be approved for entry in ICE warehouse stocks. While a 52% failure rate is unlikely to be reached for the entire amount of bags waiting to be graded, it increases the likelihood that the eventual buildup of ICE exchange coffee stocks will be much less than 171,000 bags.
Sugar’s positive turnaround last week was fueled in large part by renewed strength in its key outside markets. While this has received most of the market’s attention, there have been bullish supply/demand developments that can help sugar prices maintain upside momentum. For the week, March sugar finished with a gain of 113 ticks (up 6.4%) which broke a 2-week losing streak. A sharp rally in energy prices resulted in crude oil reaching a 2-month high and RBOB gasoline reaching a 4-month high. This provided sugar with carryover support as that can help to strengthen near-term ethanol demand in Brazil and India. In addition, the Brazilian currency gained more than 1% in value on Friday which strengthened sugar prices as that eases pressure on Center-South mills to produce sugar for the global export marketplace. While mills have increased sugar’s share of Center-South crushing over the past few months, Center-South domestic ethanol sales are on-track for a third month in a row above last year’s total. Over the weekend, India’s government announced that they will allow an initial tranche of 6 million tonnes of 2022/23 sugar exports through the end of May, with that total coming in at the upper end of trade forecasts.
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.