Coffee Prices Should Remain Supported
With the market starting to see signs of improving demand, coffee prices should remain well supported. A sharp rally to a new 7 1/2 month high in the Brazilian currency provided carryover support to the coffee market, as that should ease pressure on Brazil’s farmers to market their remaining near-term supply. ICE exchange coffee stocks increased by 1,998 bags on Thursday, but there were just over 36,000 bags left to be graded. This indicates that ICE exchange coffee stocks may reach a near-term top well below 1 million bags, and that has been a source of strength to the coffee market. Costa Rica’s January coffee exports came in 2% below last year’s total, and that has put their 2022/23 exports 12% behind last season’s pace.
In addition to a sizable pullback in the Eurocurrency and British Pound, the European Central Bank and Bank of England both increased rates by 50 basis points as expected with forward guidance pointing towards more rate hikes later this year. While this would normally weigh on cocoa’s European demand prospects, Euro zone inflation has been heading lower which should help to strengthen demand for discretionary items such as chocolates. Ivory Coast fourth quarter cocoa bean exports came in 15% below their 2021 total, and while a port strike impacted their export flow, this points towards tighter than normal supply early in the 2022/23 season. Ivory Coast fourth quarter cocoa product exports were almost 5% above the 2021 total, which shows an increasing shift towards “origin” grindings as well as improving demand.
The market closed moderately higher on the session yesterday, but the market has been trading in a sideways pattern all week. The dollar closed higher after a selloff on Wednesday. The stock market was higher but crude oil was weaker, so outside market action was mixed. The export sales report was decent, but it was also down from the past couple of weeks. Cumulative sales for 2022/23 have reached 9.453 million bales, down from 11.991 million a year ago and the lowest since 2015/16. Sales have reached 78% of the USDA forecast for the marketing year versus a five-year average of 83%. The largest buyer this week was China at 119,790 bales, followed by Turkey at 62,041. China has the most commitments for 2022/23 at 1.997 million bales, followed by Pakistan at 1.838 million and Turkey at 1.301 million.
A sharp rally to a 7 1/2 month high in the Brazilian currency provided carryover support to the sugar market, as that may ease pressure on Center-South mills to produce sugar for export. In addition to Brazil’s Petrobras increasing their wholesale gasoline prices late in January, Center-South mills should also benefit from their government’s move to end a tax exemption on ethanol imports. Market expectations that this season’s India sugar production will fall short of last season’s total continue to underpin prices late this week. The India Sugar Mills Association said that their nation’s 2022/23 sugar production through the end of January was 21.6 million tonnes which was 6% ahead of last season’s pace. In addition, Thai Sugar Millers forecast their nation’s 2022/23 sugar production at 11.55 million tonnes which would be a 14% increase over last season.
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