Key Reversal in Sugar

SUGAR

Sugar finished January with a seven-session winning streak that took prices to their highest levels since November 2016. However, the market followed that with a key reversal, which suggests at least a near-term top may be in place. A sizable pullback in crude oil and RBOB gasoline prices put carryover pressure the sugar market as that may weaken near-term ethanol demand. One factor that supported sugar’s recent rally was a move by Brazil’s Petrobras to raise its wholesale gasoline prices, which was viewed as supportive to ethanol demand. Also, several organizations in India lowered their 2022/23 sugar production forecasts, which increased the chance that the government would restrict any additional exports this season. However, Thailand continues to recover from that nation’s extended drought. The USDA has projected Thai 2022/23 production at 11.0 million tonnes, which would be a record high. Brazil’s 2022/23 Center-South sugar production is expected to come in above last season, and their 2023/24 crushing and harvesting is likely to have an early start because they did not harvest all the cane from 2022/23.

COCOA

Cocoa prices have had trouble sustaining upside momentum since reaching an 8-month high early in January. Demand concerns remain a source of pressure and could fuel a near-term pullback. A negative shift in global risk sentiment following US jobs data pressured the cocoa market as that may diminish near-term demand prospects. There were sharp selloffs in the Eurocurrency and British Pound that put carryover pressure on cocoa prices, as that will make it more difficult for European grinders to acquire near-term supplies. Inflation readings continue to pull back from their multi-decade highs in Europe and the US, which should help to strengthen cocoa’s demand outlook as that can encourage consumers to purchase more discretionary items such as chocolate. While this season’s Ivory Coast port arrivals remain ahead of last season’s pace, their recent weekly arrivals totals have come in below the comparable period last year. In addition, Nigeria’s Cocoa Association have reduced their nation’s production forecast this season due to adverse weather and disease. As a result, 2022/23 global cocoa production is unlikely to have a sizable increase from last season’s output total.

COFFEE

Coffee’s nearly 30% increase in value since the mid-January lows has left the market overbought and vulnerable to a near-term pullback. Unless there is a significant rebound in global risk sentiment, coffee could see further downside price action. A negative shift in global risk sentiment following US jobs data weighed on coffee prices as that may diminish out of home consumption prospects. While inflation readings have been heading lower in Europe and the US, restaurant and retail shop demand may remain subdued during the first quarter. A more than 1.5% decline in the Brazilian currency put carryover pressure on the coffee market going into the weekend, as that could encourage Brazil’s farmers to market their remaining near-term coffee supply. Comexim forecast Brazil’s upcoming Arabica production at 41.3 million bags which would be a 15.8% increase over this season’s output. The International Coffee Organization said that December global Arabica exports came in at 6.097 million bags, down 13.7% from year-ago levels.

COTTON

March cotton experienced choppy, sideways action last week and spent the entire week inside Monday’s range. Outside market forces were negative to cotton. The dollar rallied sharply higher in the wake of a strong US payrolls report that increased expectations that the US Fed will resume aggressive rate hikes and/or extend the duration. Crude oil was down, which makes man-made fibers more competitive with cotton. The stock market was down as well. The suspected Chinese supply balloon detected over the US raised concerns about further deterioration in US/China relations and the potential impact on cotton exports. China has been the number-one buyer of US cotton so far for the 2022/23 marketing year. For the USDA WASDE report on Wednesday, the average trade expectation for US 2022/23 production is 14.56 million bales, with a range of expectations from 14.28 million to 14.68 million.

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