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Cotton Surges Higher


The technical action remains positive. March cotton surged higher more than 3% yesterday as short covering and new buying helped to support. With low open interest and low volume holiday-type trade, minor news could spark a significant reaction. China imported 180,000 tonnes of cotton in November, up 85% from last year. Cumulative year to date imports reached 1.77 million tonnes, down 12.2% from last year. Crude oil prices jumped on optimism over the Chinese economy and a recovery in fuel demand, as higher oil prices make polyester more expensive. However, the US stock market remains in a steep short-term downtrend. Even if US planted area is down 15% and if we assume 10-year average yield and 10-year average abandonment, ending stocks would still increase to 5.78 million bales as compared with 3.5 million this year.


Cocoa prices continue to see choppy action, but remain in the December consolidation zone in spite of the negative tone seen in many outside markets. If global risk sentiment can take a positive shift, cocoa could see a retest of its mid-November highs. Reports that West Africa’s Harmattan winds are gaining strength provided a boost to cocoa prices as that should intensify drier than normal conditions into January. With many West African farmers unable to use adequate amounts of fertilizers and pesticides this year, an extended period of dry weather should negatively impact the late main crop and mid-crop cocoa production. In addition, a rebound in the Eurocurrency gave additional carryover support to the cocoa market as that should make it easier for Euro zone grinders to acquire near-term supplies. The combination of dry conditions and a lack of fertilizers and pesticides will make it difficult for this season’s West African production to have a large increase from last season.


Coffee prices have fallen back to the middle of their November/December consolidation zone. While near-term demand concerns continue to be a source of pressure, coffee has an uncertain longer-term supply outlook that may underpin prices. A negative shift in global risk sentiment kept pressure on coffee prices as that may diminish out-of-home consumption prospects. On the other hand, coffee waiting to be graded fell below 300,000 bags, which is an additional sign that ICE exchange coffee stocks could reach a near-term “top” at some point soon. Below normal rainfall over Brazil’s major Arabica-growing areas last week helped to underpin coffee prices well above last Monday’s low, as that will extend the drier than normal conditions the region has seen during the current La Nina weather event. While inflation remains very high, there are signs that it is falling back in the US and the Euro zone which can help to strengthen out of home consumption prospects.


Sugar prices remain in close proximity to last Thursday’s 7-month high in spite of volatile action over the past week and weakness in outside market forces. With several major producing nations on-track for higher output this season, sugar remains vulnerable to a sizable pullback. Crude oil and RBOB gasoline put together recovery moves that provided carryover support to the sugar market as that can help to strengthen near-term ethanol demand. India will cut taxes on ethanol delivered to their nation’s refineries for blending with gasoline, which is also supportive for sugar prices. However, the India Sugar Mills Association reported that India’s 2022/23 sugar production through last Thursday was running 5.4% ahead of last season’s pace weighed on sugar prices, as that projects that their full-season sugar output will come in ahead of last season’s record high.


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