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Tightening Supply, Improving Demand?


Cocoa prices have put together 4 positive daily results in a row for the first time since early March and have lifted clear of its recent consolidation zone. Cocoa’s demand outlook has taken a positive turn this week. December cocoa reached a new 6 1/2 week high. A lower than expected US PPI result was a second key data point in as many days showing a pullback with inflation levels, and that provided cocoa with early support as it may give a demand boost to discretionary items such as chocolate. West African growing areas are well into their “rainy” season with many regions having daily rainfall in the forecast through early next week which should benefit their upcoming 2022/23 main crop production.

Colorful cocoa pods


December futures have seen their first close above the 50-day moving average (218.36) and 100-day moving average (219.47) since the end of June. A more than 1% pullback in the Brazilian currency put early carryover pressure on the coffee market, as that may encourage Brazil’s farmers to market their near-term coffee supply to foreign customers. Safras and Mercado said that this year’s harvest was 89% completed on Tuesday, which matches last year’s pace and indicates that farmers have caught up from early harvesting delays. However, indications of tight near-term supply in Europe and North America continues to underpin coffee prices this week.


December cotton made solid gains and closed higher for the third straight session on Thursday, reaching the highest level since June 23 in the process. Weekly export sales came in strong, and the US Drought Monitor confirmed the ongoing drought. The trade is also expecting Friday’s USDA supply/demand report to show tightening ending stocks for the 2022/23 marketing year. For the report, the average trade expectation for US 2022/23 cotton production is 14.75 million bales, with a range of expectations from 14.00 to 15.75 million. This compares to 15.50 million in the July report.


Sugar prices continue to see upside follow-through from the August 1st daily reversal as they have only posted 1 negative daily result over the last 8 sessions. With the market receiving bullish supply news from Brazil and the EU, sugar prices should extend this recovery move. A pullback in the Brazilian currency put early pressure on sugar prices, but it will start today on-track for a third positive weekly result in a row.

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