Big Sugar Supply to Absorb Ahead
Unless the market can find fresh bullish supply developments, sugar could finish the week on a downbeat note. A rebound in energy prices provided the sugar market with carryover support while the Brazilian currency bounced back from early pressure, both of which should ease pressure on Center-South mills to produce sugar for export. This season’s Center-South sugar production continues to climb further above last season’s total, and that remains a source of pressure on the market. While this season’s cane harvesting has all but wrapped up, Center-South cane-growing regions have their highest soil moisture content for 7 years. This should benefit the region’s upcoming 2023/24 cane crop, while a portion of this season’s cane will not be harvested until later this year. As a result, many Center-South mills will restart their operations in March, and that should lead to higher than normal near-term sugar supply during April.
The cocoa market continues to be pressured by near-term demand concerns as it received disappointing results from the 3 major regions. After the close, fourth quarter North American grindings came in at 107,130 tonnes which was down 8.16% from last year. While there was one fewer processing plant in this year’s report, this was the lowest North American fourth quarter grindings total since 2008. While it is vulnerable to further downside action, cocoa can find support from recent bullish supply developments. While high Euro zone inflation and Russia’s invasion of Ukraine have weighed on sentiment, Europe continues to have the largest share of global grindings while having no domestic source for cocoa beans. Sluggish equity markets in Europe and the US put further pressure on cocoa prices as they may further diminish near-term demand. With global risk sentiment taking a negative shift while the market is on-track for a sizable weekly loss, cocoa could finish the week weak.
With signs that demand is on the mend, coffee should remain fairly well supported on a near-term pullback. The Brazilian currency followed through on Wednesday’s pullback with early losses that put early carryover pressure on coffee prices. A negative shift in global risk sentiment also weighed on the coffee market as that may diminish out-of-home consumption prospects. The Brazilian government agency Conab put out their first estimate for Brazil’s 2023/24 Arabica production at 37.43 million bags, which would be 14.4% above this season’s output despite the 2023/24 season being an “off-year” crop. Over 62% of coffee submitted to grading since the start of January failed to be approved, which indicates ICE exchange coffee stocks could “top out” closer to the 900,000 bags level than the 1 million bag level.
March cotton closed moderately lower on the session yesterday and near the lows of the day as traders do not seem too confident that the market will see a jump in global demand anytime soon. Weakness in the stock market was seen as a negative force. The market remains in a consolidation phase since early November as hopes that demand will improve soon have been offset by bearish news from the USDA and the outlook for burdensome ending stocks. US economic news was bearish this week and this may have added to the negative tone. With so much talk that China demand is already on the rise, traders will monitor the weekly export sales report closely.
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