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Coffee Prices Back On The Defensive


After consolidating for several sessions, coffee prices have fallen back on the defensive and reached 2 1/2-week lows. Private estimates for the 23/24 season suggest Brazil production could come in nearly 8 million bags above this season. Favorable weather for the flowering period left most areas showing good production prospects for 2023. If so, global coffee production could exceed consumption for the first time in three years. ICE exchange coffee stocks continue to increase with a build of 10,242 bags on Wednesday as they have reached their highest levels since early September, which reflects lukewarm demand and put pressure on coffee prices. After increasing on Tuesday, coffee waiting to be graded fell by 12,690 which may be more evidence that ICE exchange coffee stocks should reach a near-term “top” by mid-January. Major Arabica growing regions in Brazil have rain in the forecast over the next week, and that also weighed on coffee prices as that should benefit their upcoming 2023/24 production.

coffee beans on white background


Cocoa prices continue to be pressured by near-term demand concerns, but they have received positive developments from Asia which has been considered the “engine” for global demand growth. If global risk sentiment can have a positive turnaround, cocoa should be able to climb above its early December highs. China is taking steps to relax their Covid restrictions, which provided some measure of support to the cocoa market as that should benefit the Asian near-term demand outlook. In addition, sizable rallies in the Eurocurrency and British Pound gave cocoa further strength as that can help out European processors with acquiring near-term cocoa supplies. West African growing areas have shifted back into normal “dry” season conditions with little rain and high temperature above 90 degrees Fahrenheit in many regions which may have a negative impact on late-harvested main crop output. High inflation levels remain a problem for cocoa’s demand outlook, but the market may see evidence that it is subsiding with key economic data late this week and early next week.


Unless there is a more positive global economic outlook, the cotton market looks vulnerable to see either consolidation at a lower level, or a resumption of the downtrend. 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. India 22-23 cotton exports were revised up 350,000 bales to 3.8 million as higher production estimates will result in an exportable surplus, according to the USDA Foreign Agricultural Service. Mill consumption is seen lower at 23.8 million bales amid weaker textile demand from major export markets. USDA’s Foreign Agricultural Service also indicated that cotton imports to Vietnam, a major clothing manufacturer, are set to decline 5% to 6.3 million bales in the 2022/2023 period.


Sugar prices were able to rebound from the early break to the lowest level since November 29th to finish Wednesday’s trading session with a moderate gain. Crude oil and RBOB gasoline prices continue to slide further to the downside, which put carryover pressure on the sugar market yesterday as that may weaken near-term ethanol demand in Brazil and India. There are reports that a large portion of cane harvesting and crushing in Brazil’s Center-South region is wrapping up for the season due to ongoing rainfall, which provided a late boost to sugar prices. Most mills in Brazil Center-South region have shut for the season due to heavy rains, leaving millions on tons of cane in the fields. The remainder will be harvested next season in March. The Petrobras gasoline price cut reflects a negative shift in Brazilian driving demand, and that could put pressure on sugar prices. However, there is also talk of increasing import needs for the EU after the very poor crop season due to heat and dryness.


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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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