Cocoa Hopes Demand Tone Improves
Despite choppy post-holiday action, cocoa was able to post a fourth positive daily result in a row yesterday. While sizable gains for the month and quarter leave the market vulnerable to profit-taking, cocoa has bullish supply/demand factors that should help it to remain well supported on pullbacks. A group of major Ivory Coast cocoa processors said that their 2022/23 grindings were running 5.1% ahead of last season’s pace. This should bode well for cocoa’s global demand outlook as Ivory Coast cocoa products are shipped to Europe and North America where there is no domestic sourcing of cocoa beans.
Coffee’s inability to take out its December highs caught up with the market following the holiday weekend as recent short-covering activity appears to have run its course. While it remains within its late-December consolidation, coffee may be setting up for more selling pressures. The Brazilian currency lost more than 1% in value and reached a 1-week low, which put carryover pressure on the coffee market as that will encourage Brazil’s producers to market their remaining near-term supply.
While outside market forces were a mixed bag, March cotton closed lower on the session yesterday and unless there is evidence that cotton demand has reached a low point and may begin to improve, the market looks vulnerable to more downside. News of China exiting Covid restrictions helped to support many other commodity markets, but cotton did not respond to the potentially positive news. Weak demand from China, very sluggish weekly export sales over the past several weeks and continued concerns that consumer spending on discretionary products like apparel will remain weak are seen as bearish forces.
Sugar’s abrupt change of fortune after the holiday weekend has given back a large portion of its December rally. With bearish supply news fueling the selloff, sugar could see further downside follow-through this week. The Brazilian government agency Conab made sizable upward revisions to their 2022/23 forecasts for Brazil’s sugar production, ethanol production and cane harvest which put severe pressure on the sugar market.
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