Sugar Should Remain Supported

SUGAR

With signs of improving ethanol demand, sugar should remain well supported on any near-term pullbacks. Crude oil and RBOB gasoline prices had a sharp pullback to start out this week’s action, and that was a notable source of pressure on the sugar market as continued weakness in energy prices could erode recent improvement in ethanol demand. In addition, the Brazilian currency lost more than 0.5% in value which put additional pressure on sugar prices as extended currency weakness may encourage mills to produce more sugar for export. Following their government’s decision to have an initial export tranche of 6 million tonnes to be shipped by the end of May, the India Sugar Mills Association said that they were confident that they will allow for an additional 3 million tonnes of sugar exports later on in the season. Indonesia’s President ordered that his nation increase their cane planted area from 180,000 to 700,000 hectares in order to cut back on sugar imports.

COCOA

Cocoa’s demand outlook may be uncertain due to chronically high inflation, but positive comments from major chocolate producers have eased market concerns going into the year-end holiday season. With the market above all 3 major moving averages for the first time since early May, cocoa should extend its November rally. Sizable rallies in the Eurocurrency and British Pound along with mild gains for European and US equity markets provided the cocoa market with a source of carryover support. There are increasing signs that West Africa’s 2022/23 cocoa production will have trouble exceeding last season’s output total, and that continues to fuel cocoa’s upside momentum. The latest weekly Ivory Coast port arrivals total came in below the comparable period last year, and that has put the first 5 weeks of the 2022/23 season well behind last season’s pace. West African growing areas are shifting into their “dry” season but are widely seen to have adequate soil moisture levels. With more than 130 points in gains over the past 2 sessions, cocoa is vulnerable to profit-taking if global risk sentiment takes a negative shift during today’s action.

COTTON

December cotton closed moderately higher yesterday and near the highs of the day, but the runaway rally of the previous four sessions appeared to stall. The dollar was down sharply for the 2nd session in a row, which is supportive to US cotton exports. For the USDA supply/demand report on Wednesday, the average trade expectation for US 2022/23 cotton production is 13.62 million bales with a range of expectations from 13.42-13.81 million, which would be down from 13.81 million in the October report. US ending stocks are expected to come in around 2.73 million bales (range 2.50-3.00 million) versus 2.80 million in October. World ending stocks are expected to come in at 88.04 million bales (range 87.00-90.00) versus 87.87 in October.

COFFEE

Ongoing concerns with out-of-home demand continue to weigh on prices. December coffee fell to a new 15-month low before finishing Monday’s trading session with a sizable loss. ICE exchange coffee stocks rose by 18,652 bags on Monday, which was the first time since late August that stocks had back-to-back daily increases. A large portion of overall European coffee consumption occurs at restaurants and retail shops, so the surge in inflation levels throughout the Euro zone has diminished the European near-term demand outlook. In addition, a moderate pullback in the Brazilian currency was an additional source of pressure on coffee prices. The International Coffee Organization (ICO) said that 2021/22 global green coffee exports came in 116.07 million bags which was 1.1% below the 2020/21 export total. It may take several weeks in order to work through all of the coffee bags waiting to be graded in Antwerp, and that will likely weigh on market sentiment over that timeframe.

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