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Cotton Market Drops Sharply


May cotton closed sharply lower on the session yesterday and is threatening to take out Monday’s 4 1/2 month lows. The stock market was pressured early on more bank concerns, the dollar rallied, and crude oil collapsed. All those moves were negative for cotton. Now that the market has dropped again, traders are concerned that mills will hold off on purchases until they think the market has found a floor. Traders will be looking for an improvement in this Thursday’s US export sales report after last week’s dismal results. In last week’s report, cotton sales for the week ending March 2 showed net sales of 114,525 bales for the 2022/23 (current) marketing year and net cancellations of 68,340 for 2023/24, for a total of +46,185, the lowest since December 29. Pakistan canceled 87,084 for 2023/24, which was what pulled the new crop sales negative for the week.


Chocolate is a discretionary item for most consumers, so its near-term demand outlook will be impacted by the ebb and flow of global risk sentiment. With global markets still in a “risk off” mood, cocoa prices may slide further to the downside. Global risk sentiment took a negative shift early in the session yesterday and found little lasting benefit from a lower than expected set of US PPI data, which weighed heavily on the cocoa market as that will erode near-term chocolate demand prospects. A flare-up of European banking anxiety triggered huge selloffs in the Eurocurrency and British Pound which in turn put significant carryover pressure on the cocoa market as that will make it more difficult for European grinders to acquire near-term supplies. There has been supply-side pressure from a shift towards wetter weather over West African growing areas starting this week as the region exits its “dry” season.


Near-term demand concerns have kept the coffee market on the defensive since the beginning of March. Although there have been some positive supply-side developments, coffee prices are likely to slide further to the downside. The negative shift in global risk sentiment weighed on coffee prices as that could weaken restaurant and retail shop consumption over the near future. In addition, the Brazilian currency fell by more than 1% and reached a 2-month low, which put additional pressure on the coffee market as that may encourage Brazil’s farmers to market their remaining 2022/23 coffee supplies to foreign customers.


It was little surprise that sugar prices broke out of their consolidation zone to the downside given the negative shift in tone for global risk sentiment and key outside markets. Unless a “risk on” mood can redevelop, sugar is likely to slide further to the downside. A massive selloff in energy markets with crude oil plunging to a 15-month low put significant carryover pressure on the sugar market as that will further erode ethanol demand prospects going into the second quarter. Expectations for this season’s Chinese sugar production have been dialed back with Green Pool estimated China’s top-producing Guangxi province will have a 6-year low in output, which may open the door for more imports this year. Crude oil and RBOB gasoline prices rallied after sugar’s close on Wednesday which may provide early carryover support during today’s action.


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