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Cocoa Demand Concerns Continue


After several weeks of wide-sweeping coiling action, cocoa prices remain well below their 10-month high from early January. While a set of the region’s “flash” PMI readings came in better than trade forecasts, concern over first quarter European demand continues to be a source of pressure on the cocoa market after their 2022 third and fourth quarter grindings totals came in below their 2021 readings. While continuing to be the largest region for cocoa processing, Europe (along with North America) does not have a domestic source for the cocoa beans they grind. As a result, quarterly European grindings totals may be most reflective of overall strength in global chocolate demand. Demand remains an area of concern for the cocoa market, so a negative shift in global risk sentiment could lead to another wave of profit-taking and long liquidation.

cocoa powder and chocolate bits


Even after a 12.5% increase in value from its mid-January low, coffee remains well below its December month-end price levels. Coffee may continue to find support from an improving near-term demand outlook. The Brazilian currency regained more than 1% in value, which provided the coffee market with carryover support as that should ease pressure on Brazil’s farmers to market their remaining 2022/23 coffee supply. While US inflation gauges have been declining for several months, Euro zone inflation has begun to pull back from multi-decade highs.


March cotton has seen a decent recovery bounce off of the January 4 lows, but it will take a close above 87.82 in order to expect more upside. The market closed lower on the session yesterday with choppy trade in the stock market and a sharp break in the crude oil market leaving outside market forces with a negative tilt. Chinese markets are closed for the Lunar New Year holiday, so traders do not expect much demand news this week. Exports are already projected to drop to 12 million bales from 14.6 million last year and even with the sharp drop, cumulative export sales have reached 9.068 million bales, down from 11.267 million last year and the lowest for this point in the season since 2016/17.


Sugar prices received bullish supply-side news yesterday but were unable to climb above their recent consolidation zone. Unless the market can receive more evidence of lower Indian production this season, sugar prices could move well below their recent trading range. The Brazilian energy firm Petrobras announced a 7.5% price hike for their wholesale gasoline starting today. This move gave a significant boost to the sugar market as that should strengthen Brazilian ethanol demand. A more than 1% rally in the Brazilian currency provided sugar prices with additional support as that will ease pressure on Center-South mills to produce sugar for the global export marketplace. On the other hand, crude oil and RBOB gasoline prices saw moderate losses on Tuesday that kept further price gains for sugar in check.


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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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