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Bearish Open For Cocoa


Today’s gap lower opening is a bearish development. Reports of expanding coronavirus restriction in several European nations weighed on the cocoa market as that may not bode well for fourth quarter Euro zone demand prospects. European grindings accounts for over one-third of all global cocoa processing without having a domestic source of cocoa beans, so reports of increasing coronavirus cases could also become a source of headwinds for the market over the next few days. While the cocoa market has found fresh supply-side support over the past few weeks, they have also had to contend with demand concerns from many areas of the world.


Coffee prices continue to face demand headwinds from Europe, but coiling price action has the market grinding its way clear of last week’s lows. With the near-record 2020/21 Brazilian crop appearing to be priced into the market as well, coffee is showing fresh signs that a near-term low may be in. Reports that a typhoon may cause damage to coffee trees and further delay the 2020/21 coffee harvest in Vietnam provided underlying support to the market.


The market posted a new high overnight so a lower close today could spark some increased selling pressure. Weather conditions appear to improve after a few more days of rain; especially in the Delta. The hook reversal for December cotton after moving up to the highest level since January 14th is a bearish technical development. Producer selling is reported to be active in response to the higher prices. The market continues to draw support for inclement weather that threatens to delay harvest and reduce quality.


Sugar’s volatile price action this week has left the market within striking distance of a new multi-year high, but also near-term overbought and with a sizable net spec long position. With fresh evidence of a bearish near-term global supply outlook, sugar needs to find carryover strength from key outside markets to hold its ground. Drier than normal conditions this year with a La Nina weather event in its early stages provided early support for sugar as that could reduce this season’s late-harvest Center-South cane crop and next season’s Brazilian cane production.

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.

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