Upside in Cotton is Limited
While near-term demand remains an area of concern, the outlook is starting to improve which has helped cocoa prices to climb back toward the upper portion of its December trading range. If global risk sentiment remains positive, cocoa can extend its recovery move. A positive shift in global risk sentiment benefited the cocoa market, as that should help to soothe near-term demand concerns following several forecasts that the US and the Euro zone economies would enter into a recession next year.
If global risk sentiment continues to improve, coffee should extend this recovery move. The Brazilian currency rallied to a 6-week high which provided carryover support to the coffee market as that will ease pressure on Brazilian producers to market their coffee to foreign customers. The USDA released their biannual Coffee World Markets & Trade report and while they continue to project a sizable increase from last season, they reduced their 2022/23 global Arabica production forecast by 2.34 million bags from their June estimate.
The cotton market has seen an impressive four day rally but March cotton closed well off of the highs on Wednesday. The fact that open interest is pushing lower on the rally would suggest that short covering was the key to the buying support. This is not a good foundation for an extended move higher. Traders are anticipating a reaction to the weekly export sales data today with some talk that the global economy is doing much better, and that the China economy will be in a strong recovery over the near term.
Sugar prices have risen 7% in value over the past 7 sessions and are at the highest levels since early 2017. Of its 4 largest producers who account for 60% of global production, only the EU is expected to have significantly lower output this season which indicates that sugar may be overvalued at current price levels. However, with Brazil in the offseason, traders continue to see some tightness in supply.
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.