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Downside Correction in Cotton


With more than 460 points in gains coming into the final trading session of November, there was little surprise that cocoa saw end-of-month long liquidation and profit-taking. The market was able to hold its ground before retesting last week’s lows, however, as cocoa continues to have near-term supply uncertainty. Late in the day yesterday, there were reports that Ivory Coast and Ghana were suspending sustainability schemes that involve the US chocolate maker Hershey, and also have withdrawn each nation’s membership from the Cocoa Merchants Association of America.


The market remains in a short-term uptrend. A pullback in the Brazilian currency weighed on the market as it encourages Brazil’s farmers to market their coffee to foreign customers. In addition, reports of increasing COVID-19 cases in the US and new restrictions in areas of the UK weighed on coffee’s near-term demand outlook in both regions.


March cotton closed lower yesterday and the market looks set for a more significant downside correction. Traders remained concerned about new coronavirus cases. The market had gained on Friday after a strong export sales report, but trader concerns about demand destruction have been recurring from time to time during the pandemic.


Since posting a negative daily reversal from a multi-year high on November 17th, sugar prices have only seen two positive daily results in 9 session as the market has fallen 115 ticks (down 7.4%). With the market still holding a sizable net spec long position, sugar needs to find fresh carryover support from key outside markets in order to avoid additional long liquidation.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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