Jump in Dollar Hurts Cotton Demand
Cocoa prices have had a positive longer-term demand outlook since COVID vaccines were developed and approved for wider use, and that has helped to keep the market well supported when retesting their 2021 lows. Near-term demand concerns were given additional fuel following Wednesday’s close, however, and that could weigh on the cocoa market during today’s action.
Events after the close yesterday may put the market back on the defensive, but a bullish supply outlook should help coffee find underlying support. A new 1-year high in the Brazilian currency provided coffee with carryover support as that eases pressure on Brazil’s farmers to market their near-term coffee supply to foreign customers.
The dollar rallied sharply in the wake of the FOMC meeting (to its highest level since May 5) on what was viewed as a more hawkish turn for the Fed, with 7 of 18 members reportedly expecting a rate increase before the end of 2022 and 13 members expecting higher rates in 2023. This is negative for cotton, but the dollar rally happened after the cotton market closed, so this may be a bearish force for today.
With energy prices and the Brazilian currency under pressure, sugar is likely to drop down to a new monthly low during today’s action. The Brazilian currency reached a new 1-year high, and that currency’s recent strength has supported sugar prices as that has eased pressure on Brazil’s Central-South mills to produce sugar for the global export market.
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