More Tight Coiling Price Action in Sugar
Since reaching a new high for the move at the start of February, sugar has seen increasingly tighter coiling price action. With key outside markets losing strength, sugar may be setting up for a downside breakout move. A report that India’s mills may divert up to 4.5 million tonnes of sugar over to ethanol production this season and up to 6 million in 2025 provided early support to the market, as that indicates that their industry has been ramping up their ethanol production facilities. With cane yields coming in lower than expected in several areas, this increases the chances for India’s 2022/23 sugar production to come in below 33 million tonnes (versus 35.8 million last season). Crude oil and RBOB gasoline prices dropped sharply down to 2 1/2-week lows, which put carryover pressure on sugar as that is likely to weaken near-term ethanol demand in both Brazil and India. While the Brazilian currency shook off early post-holiday pressure and reached a 1-week high, that provided little lasting support to the sugar market as Center-South mills will mostly be idle for the next few weeks.
Cocoa prices were unable to see a “higher high” on Wednesday for the first time since February 10th, but they remain on track for a fifth positive monthly result in a row. West African near-term supply remains fairly tight, and that should help to underpin cocoa prices. While the latest German and Italian CPI readings show a further extension of their longer-term pullback, European and US inflation remains at fairly high levels. Europe continues to have the largest share of global cocoa grindings, so this morning’s Euro zone CPI reading will have an impact on the region’s cocoa demand prospects. A late pullback in European and US equity markets may have put additional carryover pressure on cocoa prices. Ivory Coast’s Coffee and Cocoa Board are restricting Cargill and Barry Callebaut from purchasing additional cocoa beans for export this season after both firms reached the total stipulated on their contracts. This move was made to avoid a near-term shortage of cocoa beans as other firms need to source beans to fulfill their sales commitments.
Coffee prices have only had one negative daily result over the past 8 sessions and are about to climb above all 3 major moving averages for the first time since late August. Although the market is technically overbought, coffee prices should benefit from recent bullish supply developments and remain well supported on any near-term pullbacks. With no bags of coffee waiting to be graded, ICE exchange coffee stocks are heading for an extended pullback that should provide support to the market. While ICE exchange coffee stocks remain well above their 23 1/2 year lows from late October, they could see a significant decline over the next few weeks. Weather issues over Brazil’s major Arabica-growing areas also boosted coffee prices as that should reduce the prospects for their upcoming 2023/24 “off-year” crop. Colombia has seen heavier than normal rainfall over the past 2 1/2 years due to back-to-back La Nina weather events as their annualized production rate has fallen to a 9-year low.
The market remains in a short-term downtrend off of the January 26th peak. May cotton closed slightly higher yesterday while new crop cotton closed lower. For the USDA Outlook Forum this week, traders see 2023/24 cotton planted area at 11.4 million acres, with a range of expectations from 10.0 to 13.5 million. This would be down from 13.8 million in 2022/23. Production is expected to come in around 16.0 million bales (range 14.0-19.0 million) versus 14.7 million in 2022/23. Consumer debt is mounting and consumer spendable income may decline and global demand may also trend lower. However, short-term demand for US cotton is strong with high sales of the last two weeks. This has helped hold the market in a consolidation phase.
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