Consolidation For Coffee Since Early Nov
It is impressive that the market experienced an upside break-out with little to no carryover support from key outside markets. If there is any pre-holiday improvement in global risk sentiment, cocoa should see a sizable extension to this week’s rally. Harmattan winds over West African growing areas have been strengthening in recent weeks, and that should have a negative impact on the region’s late main crop and mid-crop cocoa production. West Africa is well into its “dry” season that will continue until early March.
The market remains in a short-term consolidation. If global risk sentiment can show some pre-holiday improvement, the market may bounce. A sharp pullback in global risk sentiment pressured the coffee market yesterday as that may weaken out-of-home consumption prospects during the first quarter. The Brazilian currency remained well supported and is in close proximity to 6-week highs, which provided carryover support to the coffee market as that should ease pressure on Brazilian producers to market their remaining near-term supply.
The strong rally in the past week to challenge the November 16 peak occurred as open interest dropped, and this suggests short covering was the primary supportive force for the 4-day rally. March cotton pushed down the four cent limit yesterday as very weak export sales news, and increasing global economic fears helped to spark the selling. News of China canceled 144,400 bales of previously purchased US cotton helped to pressure. This was the biggest weekly cancellation since June 2012.
Sugar prices are on a 5-session winning streak as they reached multi-year price highs, and have done so in spite of global production expected to reach a record high this season. While it has found carryover support from key outside markets, sugar may have difficulty extending its fourth quarter rally unless the market can find fresh bullish supply news. Harvest delays in Thailand and Brazil have underpinned sugar prices during the late-December rally, as they should result in delays in sugar reaching the global export marketplace.
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