Cotton Sellers Stay Active

COTTON

While exports continue to come in above trade expectations, fears of recession ahead and the impact on consumer spending from inflation are factors which have kept sellers active. A sharp break in the US stock market and a stronger US dollar drove the market lower for a third session in a row. Fears that the Federal Reserve will continue to push interest rates higher has added to the bearish tone and traders fear that while economic news short-term is positive, huge credit card debt and a potential slowing of the employment situation in the longer-term could hurt cotton demand, especially for apparel. Cumulative sales for 2023/24 have reached 9.933 million bales, down from 12.334 million a year ago and the lowest since 2015/16.

SUGAR

Unless there is a significant rebound in global risk sentiment, sugar remains vulnerable to additional long liquidation. Energy prices saw a near-term pullback that put carryover pressure on sugar prices as it may weaken near-term ethanol demand. However, India is expected to divert 4 to 5 million tonnes of sugar over to ethanol production, which increases the chances for their 2022/23 sugar production to come in below last season’s total. As a result, indications that India’s government will hold off on allowing further sugar exports this season continue to underpin prices this week. Brazil’s Center-South mills are not likely to see a major shift towards ethanol production when many restart their operations next month. With a portion of this season’s cane left unharvested, this could result in an earlier than normal surge in Center-South sugar supply early in the second quarter.

COCOA

Cocoa prices have come through several days of negative demand-side developments and have extended their upside breakout move. Although a negative shift in global risk sentiment could put the brakes on its 4-session winning streak, recent bullish supply developments should leave cocoa prices well supported. News reports that several domestic Ivory Coast firms do not have enough beans to fulfill export contracts are providing a significant boost to cocoa prices. A major factor with tight near-term exportable cocoa supply has been the increase in “origin grindings” as a group of major Ivory Coast processors reported their January grindings were 16.5% above last year’s total with their 2022/23 full season grindings running 10.8% ahead of last season’s pace. A higher than expected US PPI reading along with strong results for US CPI and UK CPI earlier this week are strengthening ideas that inflation would remain at elevated levels for much of this year, which in turn may weaken consumer demand for discretionary items such as chocolates.

COFFEE

Coffee prices continue to see choppy price action as they have been unable to climb above the February consolidation zone. While the market has received bullish demand news this week, a negative shift in global risk sentiment could set up coffee prices to turn down. A 6-month low in US green coffee stocks at the end of January provided evidence of improving domestic demand that has underpinned coffee prices this week. With no coffee waiting to be graded, ICE exchange coffee stocks are on-track for their first monthly decline since October which has also shown some improvement in European demand prospects. Restaurant and retail shop consumption in many developed economies has been negatively impacted by still high inflation levels, so Thursday’s stronger than expected US PPI reading kept further coffee price gains in check. The Brazilian currency remains well below its late January high, which has weighed on coffee prices as that encourages Brazil’s farmers to market their coffee to foreign customers.

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