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Cocoa Demand Continues to Slow


While there has been a positive turnaround in key outside markets, cocoa continues to be weighed down by global demand concerns. While there was a mild gain in the Eurocurrency and more sizable gains in US equity markets, a bearish demand tone continues to pressure. Stories of increasing coronavirus cases in the US and in other nations are pushing a full “reopening” of the global economy even further into the future.


After spending most of June in a relatively tight consolidation range, September coffee broke out to the upside. In addition to a modest recovery move by the Brazilian currency, forecasts for well below normal temperatures over coffee-growing areas in the Brazilian states of Minas Gerais and Parana over the next few weeks provided a boost to coffee as they point towards an increased chances of frost damage to coffee trees. In addition, recent wet weather over Arabica-growing areas of Minas Gerais have caused additional delays to this year’s Brazilian harvest which has slowed the flow of coffee beans onto the global marketplace.


The USDA Planted Acreage Report comes out today and may spark some volatility. Traders expect 13.153 million acres (range 12.5-13.75 million) which would be down from 13.703 million in March. If the acreage number does come in at the average and all of the other parts of the US supply/demand balance sheet are left unchanged from the June WASDE report, then 2020/21 US production would come in at 18.82 million bales, down from 19.50 million estimated in June and 19.91 million in 2019/20. Ending stocks would come in at 7.22 million bales, down from 8.00 million estimated in June and 7.30 million in 2019/20.


The short-term technical action is positive but a bearish supply outlook will continue to pressure and may be an offset. After falling to a new 3 1/2 week low, October sugar found its footing and closed with a moderate gain. Energy prices posted sizable gains, which benefited the sugar market as it should improve Brazilian ethanol demand prospects. A rebound in global risk sentiment and a mild recovery in the Brazilian currency provided additional strength.

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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