Cotton Continues Its Consolidation

COTTON

The market remains in a short-term consolidation but does not seem to have the supply fundamentals to expect much of a rally. May cotton closed slightly lower yesterday as the market continued its consolidation. The CPI report came in higher than expected at up 0.5% on the month versus an increase of 0.1% in December. This could make traders concerned that the Fed will turn more aggressive in its rate hikes, especially in the wake of the strong jobs report for January. Traders also expect Turkey, which has been a strong buyer of US cotton this year, to ease back on its purchases as it recovers from the recent earthquake.

COCOA

The market experienced an upside breakout today with 2757 as next swing target for May Cocoa. Cocoa’s demand outlook has seen improvement, but concerns about inflation levels in developed economies persist. The market continues to receive bullish supply news, and that should keep cocoa prices well supported on any near-term pullbacks. The latest US CPI reading came in higher than trade forecasts, but the year-over-year reading showed a minimal downtick from the previous result. While this was a seventh monthly decline in a row for the year-over-year CPI, the prospect that US consumer inflation will remain at high levels weakened cocoa’s demand outlook and put pressure on the market. On the other hand, the recent shift towards very warm and dry conditions over West African growing areas this week provided underlying support to cocoa prices as that will negatively impact the region’s upcoming mid-crop production. In addition, there has been a notable pullback in recent weekly Ivory Coast port arrivals as their full-season total is now just slightly ahead of last season’s pace.

COFFEE

There is an increasingly likelihood that Brazil’s upcoming “off-year” Arabica crop will come in above this season’s total, with StoneX estimating a 6.4% increase from this season’s total. Other major Arabica producers continue to have supply issues, however, so coffee prices remain well supported. Guatemala’s January coffee exports came in below last year’s total, which is the fourth month in a row that their exports came in under the previous year’s total. As a result, Guatemala’s 2022/23 coffee exports are now 26% behind last season’s pace as Central American growing nations are having a slow start to this season. While they have leveled out early this year, Colombia’s 12-month production pace is at a 9-year low which will also reduce global Arabica supply early this year which have underpinned coffee prices this week.

SUGAR

Sugar prices have remained well supported despite a pullback in energy prices. The market continues to have a bearish supply outlook, however, and that will leave sugar vulnerable to a near-term pullback. A smaller than average delivery for the March ICE white sugar contract was seen as evidence of stronger near-term demand for white sugar which has underpinned prices. An increasing likelihood that India will not allow any further exports this season as well as forecasts that 2023/24 EU sugar production will have a sizable decline from this season’s output have also provided support to the sugar market.

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