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Cocoa Prices Recover


Cocoa prices have recovered most of their mid-November break and are back within striking distance of a new 6-month high. If global risk sentiment can show further improvement, cocoa should remain strong. A rebound in global risk sentiment benefited the cocoa market as that can help to soothe near-term demand concerns. High inflation levels remain a headwind for cocoa prices as they result in many consumers pulling back on their discretionary purchases. As a result, the market may pay additional attention to today’s US PPI reading and Chinese CPI and PPI readings to gauge whether there is an extended decline in inflation already underway. A lack of adequate fertilizer and pesticide use will limit the ability of this season’s West African main crop production to come in well above last season’s output, which has also underpinned cocoa prices. In addition, there have been outbreaks of black pod disease in Ghana and Nigeria that will have a negative impact on their 2022/23 cocoa production. While it will not match last season’s record high, the 2022/23 season should finish with a sizable global production deficit. Near-term demand continues to weigh on cocoa prices due in large part to multi-decade high inflation levels.


Coffee prices have extended this week’s downside breakout as they have been pressured by recent bearish supply news. The market will start the day less than 5 cents away from a new low for the move. Several analysts have upwardly revised their forecasts for Brazil’s 2023/24 Arabica crop, which continues to weigh on coffee prices this week as that would likely result in a global production surplus next season. Keep in mind that Brazil will have an “off-year” crop during the 2023/24 season, while their coffee trees have dealt with drier than normal conditions due to La Nina. As a result, many analysts feel that Brazil’s upcoming coffee production will only be in-line to slightly above this season’s output.


Without a bullish surprise from the USDA, the market looks vulnerable to more selling pressures short-term. For the USDA monthly supply/demand report, traders see US ending stocks near 3.12 million bales, 2.85-3.50 range, as compared with 3.00 million bales last month. Production is expected near 13.96 million bales from 14.03 million last month. Exports are expected at 12.34 million bales, 12.00-12.60 range, as compared with 12.5 million last month. US cotton export sales for the week ending December 1 came in at 32,640 bales for the 2022/23 (current) marketing year and 26,400 for 2023/24 for a total of 59,040. Cumulative sales have reached 72% of the USDA forecast for the marketing year versus a five-year average of 70% for this time of year. The biggest buyer this week was Pakistan at 25,363 bales, followed by China art 10,964 and Turkey at 10,908. China has the most commitments for 2022/23 at 1.872 million tonnes, followed by Pakistan at 1.738 million and Turkey at 1.152 million. China’s agriculture ministry lowered its outlook for cotton consumption. Consumption for the 22/23 crop year that began in September is seen at 7.5 million tons, down 200,000 from last month’s forecast.


Sugar’s whipsaw price action so far this month has resulted in only a 5 tick gain as the market remains well below its mid-November highs. Unless it can find carryover support from key outside markets, sugar’s most likely direction for a breakout move is towards the downside. A sharp early rally in crude oil and RBOB gasoline prices yesterday provided carryover support to the sugar market as that can help to shore up near-term ethanol demand. The energy markets gave back most of their gains by the close. India’s mills have agreements in place to export 4.4 million tonnes of sugar during the 2022/23 season, which reflects an uptick in global demand which has also underpinned sugar prices. The European Association of Sugar Manufacturers forecast EU 2022/23 sugar production at 15.5 million tonnes which would be a 7% decline from last season and is likely to result in increased Euro zone sugar imports.


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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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