Bullish Supply Outlook Drives Cocoa Market
Cocoa prices have extended their September updraft further into new high ground as it has found support from both the supply and demand sides of the market. Global risk sentiment and key outside markets are holding a negative tone early this week, however, and that may limit the advance.
As demand shows signs of improvement, coffee can remain in a short-term uptrend. Colombia’s August coffee production came in at 915,000 bags, which was 16% below last year’s total. This shortfall may be due in part to the supply bottlenecks seen earlier this year, and while it is difficult to make year-over-year comparisons due to Colombia not putting out May and June production readings, that also provides further evidence that Colombia’s output is falling below a 14 million bag annualized pace.
The market continues to trade higher in spite of the dollar index jump off of last week’s lows, the stock market break, energy market weakness and metal market weakness. The weekly crop progress report showed 61% of the US cotton crop was rated good/excellent as of September 5, down from 70% the previous week but still above the 10-year average of 45%.
Sugar’s pullback from last week’s high has put the market at the bottom portion of its August/September consolidation zone. Although global risk sentiment and key outside markets have taken a negative shift following the holiday weekend, bullish supply developments can help sugar prices find their footing. Energy prices extended their pullback, which was a source of carryover pressure on the sugar market as that could end up weakening Brazilian domestic ethanol demand prospects.
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