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Cocoa Demand Likely to Improve


With the demand outlook showing signs of improvement, cocoa should be able to extend its recovery move early this week. A sizable year-over-year decline in North American fourth quarter cocoa grindings put the cocoa market under severe pressure, as it meant that all 3 major regions had negative year-over-year results during the fourth quarter. The trend towards more “origin” grindings (where cocoa beans are processed in the nation they were grown) has also reflected longer-term improvement in global demand as Ivory Coast is both the world’s largest producing nation and grinding nation. The US and the Euro zone are starting to see a sustained pullback with inflation readings, however, and that should encourage consumers to increase their purchases of discretionary items such as chocolates. In addition, a strong recovery move in US equity markets helped cocoa prices to regain their strength as that should help to soothe near-term demand concerns.

Cocoa colorful pods


Coffee prices are on-course for a fifth negative monthly result in a row and have lost over 31% in value since the end of August. Coffee will need to see signs of improving demand in order to sustain a recovery move. Colombia continues to have production issues that have strengthened coffee prices over the past 1 1/2 weeks. While there has been talk of good soil moisture levels in Brazil’s south Minas Gerais region, the 2023/24 crop had a disappointing flowering period last year which limit its ability to exceed this season’s production total. In addition, major Central American producers had a sharp year-over-year decline in their 2022 fourth quarter coffee exports. Coffee continues to deal with near-term demand concerns, particularly with out-of-home consumption. While inflation levels have fallen back from multi-decade highs, it remains high enough to have a negative impact on restaurant and retail shop coffee purchases.


The cotton market remains in an impressive uptrend and with China a more active buyer, and outside market forces holding a positive tilt, the market is threatening to move higher still. New crop December cotton pushed up to the highest level since September 2nd on Friday. China’s reopening is expected to spark increased economic activity and even before the reopening, China cotton prices have pushed higher. Crude oil headed for a second weekly gain due to brightening economic prospects for China and expectations of a boost to fuel demand and higher oil prices make polyester more expensive. Sales have reached 75% of the USDA forecast versus a five-year average of 80%.


Sugar prices have found support from production issues in India, but there has been a change in this season’s export prospects. As a result, sugar is vulnerable to a near-term pullback. An Indian official said that the government would consider a second export tranche for this season, which was in contrast to earlier reports that India would hold off on sugar exports beyond the 6.1 million tonnes allowed for in their first tranche. While updated forecasts are calling for India’s 2022/23 production to fall below 34.5 million tonnes (versus 36.5 million last season), this would indicate that their production will still be large enough to allow for additional exports. Energy prices extended their recovery move late last week, which provided the sugar market with carryover support. With their 2022/23 Center-South sugar production already ahead of 2021/22’s full season total by the end of December, the market may focus on whether sugar’s share of crushing during the first half of January stays close to this season’s 45.9% share so far.


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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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