Weak Technical Action For Cocoa
Since the start of the second quarter, cocoa prices have been unable to sustain recovery moves as near-term demand concerns continue to weigh on prices. Although global risk sentiment is on the mend, cocoa may need to see further indications that inflation is easing before it can find its footing. While central bankers have dialed back expectations for upcoming rate hikes, many gauges of inflation for major economies have not seen a large enough pullback to boost discretionary spending, and that has weakened cocoa’s third quarter demand outlook. A pullback in the Eurocurrency and British Pound also put carryover pressure on cocoa prices, as that could make it more difficult for European processors to acquire near-term cocoa supplies.
Demand issues continue to weigh on prices, but coffee also has bullish supply developments that have underpinned the market. Rainfall over Brazil’s major Arabica-growing region was well below average last week, and that strengthened coffee prices as that could extend production issues into their upcoming 2023/24 crop. The current 2022/23 crop has seen drier than normal conditions due to the La Nina weather event and is expected to be the second smallest of the last 9 “on-year” crops.
The market remains in a short-term consolidation phase since July 18 as traders continue to see a clash of concerns for weak demand as compared with continued concerns with crop losses out of Texas. A surge higher in the stock market is seen as a positive force, which is offset by the strength in the US dollar and weakness in crude oil. The 1-5 day forecast models show just trace amounts of rain for the Panhandle, and none for the rest of Texas.
Sugar prices have had a volatile start to August, but the market has put together a 3-day winning streak with little carryover support from their key outside markets. If global risk sentiment continues to improve, sugar prices should be able to complete a positive weekly reversal. A sharp selloff in crude oil and RBOB gasoline prices put carryover pressure on the sugar market as that could weaken ethanol demand in both Brazil and India.
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