Cotton Recovers Losses

COTTON

March cotton closed higher yesterday, recovering all of Monday’s losses and then some. This put prices back into the consolidation of the past two weeks after breaking below it on Monday. The dollar closed lower for the first time in three sessions, which provided some support to cotton. Crude oil closed sharply higher too, which was supportive to cotton. Some of the concerns about Chinese demand that were present in the market on Monday seemed to ease a bit. Traders have been worried that China could slow or even cancel purchases of US cotton given uncertainty over Covid and “baloongate.” Traders seem to bounce between optimism and apprehension after China lifted their Covid restrictions. US cotton exports for the month of December reached 675,000 bales, down 19.8% from last year.

COCOA

While cocoa prices are on a 4-session losing streak, they have continued to hold their ground above the mid-January low and the 50-day moving average. Events after Tuesday’s close may provide some relief for the market’s near-term demand concerns, and that help cocoa prices sustain a recovery move. Mixed results for European equity markets and a new 4-week low in the Eurocurrency put carryover pressure on cocoa prices as they do not bode well for European demand prospects. Above-normal rainfall over many West African growing areas last week also weighed on the cocoa market as that improves the outlook for the region’s mid-crop production. After the close, comments from Fed Chair Powell were less hawkish than the market had feared while BOC Governor Macklem said that the BOC will not have to raise rates if inflation follows their forecasts. This fueled a “risk on” mood across many markets that could provide a boost for demand of discretionary items such as chocolates.

COFFEE

If global risk sentiment continues to mend, coffee should be able to hold support on a corrective break. A Reuter’s poll indicated that traders expect an annual drop of near 12% in coffee prices for 2023. Brazil production is expected to climb to 67.1 million bags which would be up from an average estimate of 61.5 million bags for the 22/23 season. Vietnam production is expected to increase to 31 million bags from 30 million in the 22/23 season. Traders expect a global production surplus of 3.35 million bags compared with a deficit of 4.15 million for the 22/23 season.

SUGAR

May sugar continues to operate under the negative technical influence of the February 1 key reversal from a six year high. A pullback in the Brazilian currency put early carryover pressure on the sugar market, as its more than 5% loss in value from last Thursday’s 8-month high may encourage Center-South mills to produce more sugar for export. Crude oil and RBOB gasoline prices extended their recovery move with sizable gains that helped to lift the sugar market back into positive territory yesterday. India’s government has encouraged their sugar industry to ramp up their ethanol production facilities, and that will make it more likely that they will not allow additional sugar exports this season. There has also been ideas that if Brazil’s 2023/24 Center-South cane harvesting begins earlier than normal in mid-March, it could lead to supply congestion and bottlenecks at their nation’s major port facilities as Brazilian soybeans are normally shipped out during that period.

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