Cotton Lower Despite Crop Conditions
Cocoa’s roller-coaster ride over the past 4 sessions started as the market received second quarter grindings result that met negative expectations. While there may be volatile price action over the rest of this week, the fact that prices have yet to retest last Thursday’s early low could indicate that cocoa’s global demand outlook may have reached its low point during the second quarter.
Since breaking out of a consolidation zone to the downside in mid-April, coffee prices have only closed above their 50-day moving average in 3 sessions. Two of those three have occurred in the past 3 sessions as the market continues to show signs that a longer-term low has been put it. The Brazilian currency regained more than 3.8% in value so far this week and reached a 3 1/2 week high, and that has been a major source of support for the coffee market as it eases pressure on Brazilian farmers to market their near-term supply to foreign customers.
Given the big jump in crop conditions from the weekly update from the USDA, the market had little reaction as traders are uncertain if the improving crop condition trend will continue. A cooler and much wetter 6 to 10 day forecast is seen as a short-term bearish weather development. While the demand tone has been mostly negative due to increasing virus cases, outside market forces including the stock market suggest a stronger economy ahead and this helped provide support.
Sugar continues to have trouble sustaining a recovery move and is drifting back towards its June and July low. Unless the market can find fresh supply/demand support, sugar prices may be heading for an extended downside move. A more than 2.5% gain in the Brazilian currency to a new 3 1/2 week high combined with sizable gains in the energy markets with crude oil reaching a 4-month high) to boost sugar prices early in the session yesterday.
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