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Bullish Supply Developments in Cocoa


Despite sizable gains for the month and quarter, the cocoa market was able to avoid significant profit-taking late last week, due in large part to recent bullish supply developments. While the demand outlook continues to be impacted by the ebb and flow of global risk sentiment, cocoa prices should remain well supported on pullbacks. There was continued improvement in global risk sentiment following Friday’s economic numbers from China, Europe and the US which helped to shore up cocoa’s near-term demand outlook. However, weekend news that OPEC nations will cut 1 million barrels per day of their crude oil output could weaken risk appetites early this week which in turn could pressure cocoa prices. In addition, tight West African supplies continue to provide support to cocoa prices.


The hook reversal after trading down to the lowest level since January 27 on Friday is a short-term positive technical development. For the week, May coffee finished with a loss of 9.45 cents (down 5.3%) which was a fourth negative weekly result over the past 5 weeks. Steady improvement in global demand sentiment may help to strengthened coffee’s out of home demand outlook, and that gave coffee prices an early boost. In addition, Brazilian currency rallied to a new 8-week high which provided carryover support to the coffee market as that eases pressure on Brazil’s farmers to market their remaining coffee supply.


May cotton spent the latter part of last week consolidating its gains from a sharp breakout rally from Monday and Tuesday. The market closed lower on Friday, but it stayed in the upper end of the week’s range. The USDA prospective plantings report showed US cotton area at 11.3 million acres, versus an average trade expectation of 11.0 million and a range of expectations from 10.5 to 12.7 million. The dollar closed higher on Friday, which is negative to cotton, but crude oil and equity markets were higher, which is supportive.


July sugar maintained strong upside momentum and extended its upside breakout to a new 6-year high before finishing Friday’s trading session with a sizable gain. For the week, July sugar finished with a gain of 149 ticks (up 7.3%) and a second positive week in a row. A strong finish to the month for energy prices benefited the sugar market as that should help to improve near-term ethanol demand in Brazil and India. Weekend news that OPEC nations will cut their crude oil production by 1 million barrels per day caught the market by surprise and could lead to sizable rallies in crude oil and RBOB and that should provide plenty of carryover support to the sugar market. The Brazilian currency extended its rally to an 8-week high, which also gave a boost to sugar prices as that eases pressure on Center-South mills to produce sugar for export.


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