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Bullish Supply Developments for Cocoa


Cocoa prices have posted their first back-to-back negative daily results in two weeks but will start today only 42 points below Tuesday’s multi-year high. Even though the market is nearly 200 points above its February low, cocoa continues to have bullish supply developments that should provide support on pullbacks. Reports that cocoa supplies have flowed from Ivory Coast into Ghana due to higher farmgate prices may have diminished market concern over tighter near-term Ivory Coast supplies. However, it appears now that Ivory Coast’s Coffee and Cocoa Board have put restrictions on 20 firms with purchasing additional cocoa beans this season. While this will help out those firms who are in jeopardy of defaulting on export contracts, it provides more evidence that near-term West African supplies remain tight.


Coffee prices ran out of upside momentum before they could break out above their 200-day moving average for the first time since late August. With sizable gains for the week and month coming into today’s action, coffee may be vulnerable to week-ending profit-taking. ICE exchange coffee stocks fell by 5,400 bags on Thursday for a tenth daily decline in a row, and with 3 sessions left in February are likely to have their first monthly decline since October. Their continued drawdown provides a source of support of strength to coffee prices as that reflects improving out of home consumption prospects, particularly in Europe where most of the coffee is stored. While no coffee was graded on Thursday, there are now more than 10,000 bags waiting to be graded so the streak of daily declines in ICE exchange coffee stocks may be close to an end. A negative shift in global risk sentiment weighed on coffee prices and a triggered a wave of additional long liquidation.


The market closed just slightly higher on the session yesterday which may be disappointing to the bulls. It was the third session in a row in which the market closed well off of the highs and below the opening. The jump in the crude oil helped to support the market early in the day, and the market also found support from hopes for solid weekly export sales news for a third week in a row. For the USDA Outlook Forum, traders expected 2023/24 cotton planted area near 11.4 million acres, with a range of expectations from 10.0 to 13.5 million which would be down from 13.8 million in 2022/23. They pegged acreage at just 10.9 million acres. While this was considered a supportive force, the USDA expects production to come in at 15.8 million bales, up from 14.7 million in 2022/23.


Sugar found fresh support from bullish supply developments and from key outside markets, and is back to within striking distance of reaching a new 6-year high. With the expiring March contract losing 44 ticks in value versus the May contract over the past 4 sessions, sugar may have trouble extending its rally. Updated forecasts have seen further reductions with India’s 2022/23 sugar production with the India Sugar Mills Association at 34.0 million tonnes and a Financial Express industry survey coming in at 33.5 million. This compares with last season’s 35.9 million tonnes production total, and the likelihood that India will not allow additional exports this season has underpinned sugar prices late this week. The EU is looking at a third sugar production decline in a row during the 2023/24 season, due in large part to recent dry weather and a French pesticide ban. Crude oil and RBOB gasoline put together sizable recovery moves on Thursday that were a source of additional carryover support to the sugar market.


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