Cocoa Holds Its Ground
Cocoa prices have seen choppy price action so far during the month of February, but the market continues to hold its ground above the mid-January lows. If global risk sentiment can improve, the cocoa market may be able to climb above its recent consolidation zone. Both the Eurocurrency and British Pound had sizable pullbacks late last week that put carryover pressure on cocoa prices, as that will make it more difficult for European grinders to acquire near-term supply. However, a shift back towards drier and very warm weather over West African growing areas helped the cocoa market to find its footing. West Africa’s dry season normally ends in mid-March, so these weather conditions are likely to have a negative impact on the region’s upcoming mid-crop cocoa production. Although the full-season total continues to run ahead of last season’s pace, recent weekly Ivory Coast port arrivals total have come in below the comparable period last year, which indicates a pullback in their main crop output.
Coffee prices have held within a fairly tight trading range and have been unable to sustain upside momentum since a negative daily reversal on February 1st. With a bearish tilt for the Brazilian production outlook, coffee could see downside pressure. The Brazilian currency rebounded from a new 1-month low to post a moderate daily gain, as that provided carryover support to the coffee market as that should ease pressure on Brazil’s farmers to market their near-term supply. Brazil’s largest co-op Cooxupe said that their region’s 2023/24 coffee production will be larger than the previous two season’s output, and that the 2024/25 season could result in a record high production total. The 2023/24 season is an “off-year” for Brazil’s Arabica production, but the likely finish for La Nina during the first quarter should benefit their upcoming crop.
The cotton market has been in a coiling pattern since putting in a low in November. The market closed slightly lower on Friday but well up from the lows on the day. The dollar was higher but so was crude oil, so two key outside market forces conflicted with each other. The export sales report on Thursday was supportive, but the USDA supply/demand report was bearish. China has been the number-one buyer of US cotton so far for the 2022/23 marketing year, but traders are apprehensive that rising political tensions between the US and China could interfere. The recent US weekly Drought Monitor shows lingering drought conditions in west Texas, but they are better than they were a year ago and much better than they were last summer.
Sugar prices are on a 4-session winning streak, but appear to have lost upside momentum going into the weekend. Unless the market can receive fresh bullish supply news, sugar remains vulnerable to a near-term pullback. A moderate rebound from a 1-month low in the Brazilian currency combined with sizable gains in crude oil and RBOB gasoline to provide the sugar market with early carryover support. The Brazilian trade group Unica released their Center-South supply report for the second half of January, which showed a modest amount of cane crushing and sugar production as 3 mills were still operating over that timeframe. The Unica supply report also showed that January Center-South domestic ethanol sales had a sixth month in a row above the previous year’s total, which provided additional support to the market as it reflects some improvement in ethanol demand.
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