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Coffee Market Hits 20-Month Low


Coffee prices have lost more than 13% in value during its current 8-session losing streak as the market has broken well below its November/January consolidation zone. The market reached a 20-month low as near-term demand concerns continue to be a major source of pressure. Forecasts for a recession in the US and the Euro zone has helped to pressure. There has been a pullback in inflation readings with the US and major European nations, however, which could provide a boost to restaurant and retail shop consumption. The continued buildup of ICE exchange coffee stocks has put additional pressure on the coffee market, with Tuesday’s increase of 6,113 bags lifting them to their highest levels since July. While more bags failed the grading process so far this week than were approved, there are more than 186,000 bags of coffee that are waiting to be graded.


Cocoa’s sharp rally to a 9-month high left the market overbought and March Cocoa has a 164-point trading range during the first 6 sessions of January. While this sets the stage for continued volatile price action, cocoa should find decent support on set-backs. The current West African dry season has seen Harmattan winds that have been weaker than normal so far, and that put pressure on the cocoa market as that should improve this season’s production outlook.  A negative turnaround in the Eurocurrency and British Pound put carryover pressure on cocoa prices as extended currency weakness could make it more difficult for European grinders to acquire near-term cocoa supplies. Inflation levels have been dropping in many developed economies, and that should help to strengthen cocoa demand as consumers may be encouraged to purchase discretionary items such as chocolates.


The market remains in a short-term uptrend but failure to take out the December 21 high this week might sour the technical picture. Even a strong recovery and bullish action for the stock market failed to support March cotton, and the market closed moderately lower on the session and even took out Monday’s low. Traders seem to remain extremely optimistic about global demand and traders will monitor the demand outlook closely. In addition, traders seem to remain optimistic that a China reopening could spark increased demand soon. Once again, this seems unlikely that global demand will improve enough to spark increased imports from China and others.


While it is finding carryover support from key outside markets, sugar will need to find additional bullish supply news in order to see more than just a technical recovery bounce. March sugar followed through on Monday’s daily reversal and experienced a sizable gain. Crude oil and RBOB gasoline prices extended their recovery moves which in turn provided the sugar market with carryover support as that should help to strengthen near-term ethanol demand. The Brazilian currency reached a 1 1/2 week high, and that also gave a boost to sugar prices as that eases pressure on Center-South mills to produce sugar for export. While analysts and trade groups are dialing back their forecasts for India’s 2022/23 sugar production, it should still come fairly close to last season’s record high total. In contrast, Brazil’s Center-South sugar production will continue to grow with several mills still operating in January.


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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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