Coffee Prices Volatile This Week

COFFEE

Coffee prices have seen volatile action so far this week, and will start today’s session 8.6% higher than Friday’s 15-month low. With the market continuing to receive bullish supply developments, coffee may be able to overcome near-term demand concerns and extend its recovery move. The Brazilian currency has climbed well above the recent lows which provides support. Brazil’s October coffee exports came in at 199,898 tonnes which compares to 188,843 tonnes but is due in part to their 2022/23 production coming from an “on-year” crop.  Early forecasts for Central American 2022/23 coffee production show general improvement on last season’s output, but those estimates may have to be dialed back after this season’s slow start. ICE exchange coffee stocks remain unchanged for a third session in a row as they remain at a 23 1/2 year low, but there are now more than 141,000 bags waiting to be graded at the port of Antwerp. A large portion of that newly-arrival coffee in Antwerp is not going to pass grading, but it certainly means that ICE exchange stocks will lift clear of their 21st century lows over the near future.

COCOA

Cocoa prices have made a strong start to the week and month as the market received positive commentary on its demand outlook. Recent supply-side developments should help cocoa prices to remain well supported. A slow start to West Africa’s 2022/23 harvest has provided the cocoa market with underlying support as Ivory Coast port arrivals over the past 4 weeks are well behind last year’s pace. In addition, comments from Mondelez that European demand will hold up during the upcoming holiday season provided an additional boost to cocoa prices. Post FOMC-meeting comments from Fed Chair Powell indicated that rates may reach a higher ceiling that the market has been expecting, which indicates that US inflation levels may remain at high levels into 2023. The Bank of England is also expected to have a sizable rate hike later today, and their post-meeting comments will certainty touch on how long UK inflation will hold close to its currently very high levels.

COTTON

December cotton gapped higher yesterday and closed limit-up for the second session in a row. The market has rejected Monday’s 22-month low with a sharp, short covering rally. Traders report that the drop in prices encouraged mill fixations, and the desire to fix prices increased when the market appeared to put in a bottom. Traders are also suggesting that the market has put in a harvest low. Traders will be looking to today’s export sales report to see if there is any improvement over recent weeks. Last week’s report showed net sales of 75,565 bales for the week ending October 20, down from 88,871 the previous week and the lowest since September 22. Sales have slowed down over the past two months after coming in above 300,000 bales for two weeks in late August/early September.

SUGAR

While sugar was unable to extend its recovery move, the market remained well supported in spite of the negative shift in global risk sentiment. The market should remain well supported on any near-term pullbacks. Heavier than normal rainfall during October and November over many of India’s cane-growing regions weighed on sugar prices early in the session yesterday as this increases the chances for record sugar production during the 2022/23 season. Starting in December, India’s government announced that their nation’s state-run fuel retail will pay a higher price to mills for their ethanol. This may ramp up India’s ethanol production which in turn could limit any increase in 2022/23 sugar production from last season. In addition, a rally in crude oil and RBOB gasoline prices provided carryover support. The sharp pullback in global equity markets following post-FOMC meeting comments by Fed Chair Powell could spark some selling.

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