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Sugar Vulnerable to Sizable Pullback


Sugar prices benefited from near-term bullish supply developments late last week but remain firmly within its December consolidation zone. Unless it can find fresh carryover support from key outside markets, sugar remains vulnerable to a sizable pullback this week. For the week, March sugar finished with a gain of 12 ticks (up 0.6%) which was a second positive weekly result in a row. Lower than expected yields for India’s early-harvest cane crop have led to some analysts dialing back their full-season forecast for India’s sugar production, and that provided underlying support to the market. There are reports that many of Brazil’s Center-South mills are winding down their operations for this season as extended rainfall has led to more delays in cane harvesting and crushing, and that also strengthened sugar prices late last week. Keep in mind that unharvested Center-South cane will likely be harvested and crushed early during the 2023/24 season and should give a boost to sugar production. There has been a notable uptick in sugar’s share of Center-South crushing so that by the first half of November, the full-season 2022/23 share was running ahead of last season’s pace. Crude oil and RBOB gasoline made new lows for the move Friday.


Cocoa’s turnaround Friday was due to a negative shift in global risk sentiment and gained additional strength from profit-taking in front of this week’s critical events. While the market may have trouble finding its footing, recent bullish supply development can help cocoa prices to hold their ground. For the week, March cocoa finished with a loss of 32 points (down 1.3%) which broke a 2-week winning streak. High inflation causes consumers to pull back on discretionary purchases, so recent CPI and PPI results from major economies has weighed on the cocoa market. Last Friday’s US PPI and core PPI readings came in higher than expected which pressured cocoa as high inflation may erode near-term chocolate demand. Following Tuesday’s US CPI result, the market will receive longer-term inflation forecasts from Wednesday’s FOMC meeting as well as from Thursday’s European Central Bank and Bank of England meetings, and that may have encouraged some longs to liquidate their positions and head to the sidelines in front of the weekend. A pullback in the Eurocurrency put carryover pressure on the cocoa market as that will make it more difficult for Euro zone grinders to acquire near-term cocoa supply. If the latest weekly Ivory Coast port arrivals reading comes in above last year’s comparable total, it will push this season’s arrivals total further ahead of last season’s pace. With a second large global production deficit in a row expected for this season, cocoa prices should remain well supported on any near-term pullback.


A significant portion of global coffee consumption occurs at restaurants and retail shops where demand is more sensitive to higher inflation. The market has had a rough start to December and have critical longer-term inflation forecasts to digest this week. This week, the coffee market will have the latest US CPI result and the FOMC, ECB and BOE meetings expected to show that inflation will remain high well into 2023 which will make it difficult for out-of-home consumption to have any significant improvement. On the other hand, the International Coffee Organization forecast global coffee demand will increase by 1% to 2% each year through 2030. While they mostly produce Robusta coffee, this year’s Vietnam coffee exports are running 13% ahead of last year’s pace pressured the market late this week as their export surge may dampen global Arabica prices as well. Colombia’s annualized production pace has fallen to an 8 1/2 year low, while this season’s Brazilian “on-year” Arabica production was so small that some analysts are projecting the 2023/24 “off-year” crop will have an increase from this season.


March cotton managed to close slightly higher on session Friday but down on the week. In Friday’s monthly supply/demand update, the USDA raised the US 2022/23 cotton yield estimate to 868 pounds per acre from 855 in the November report. This brought the production forecast to 14.24 million bales from 14.03 million previously but still down from 17.52 million a year ago. World ending stocks increased to 89.56 million bales from 87.27 million previously and the highest since 2019/20. Aside from the US, most major producers saw their production forecasts decline or hold steady. Pakistan’s production forecast fell to 3.70 million bales from 4.50 million previously.


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