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Uncertain Supply Outlook in Coffee


Coffee continues to face demand issues heading into 2023, but the market is finding support from an uncertain supply outlook. Even if global risk sentiment remains subdued, coffee may still benefit from year-end short covering. March coffee reached a new 8-week high yesterday. ICE exchange coffee stocks rose by 10,750 bags on Wednesday to reach their highest level since July, but coffee waiting to be graded fell by over 15,000 bags.

coffee beans


The sweeping outside day down after reaching the highest level since April is a bearish technical development and could attract increased selling pressure over the near term. Cocoa prices were unable to extend their 4-session winning streak and with 2 days left in the trading year, is vulnerable to profit-taking and additional long liquidation. With the market taking a positive shift in the supply demand outlook late this year, cocoa prices should remain well supported on a near-term pullback. Indications that dry-season conditions will negatively impact West African production provided support.


Unless there is evidence that cotton demand has reached a low point and may begin to improve, the market looks vulnerable to more downside. Weak demand from China, very sluggish weekly export sales over the past several weeks and continued concerns that consumer spending on discretionary products like apparel will remain weak are seen as bearish forces. March cotton experience choppy and two-sided trade early yesterday, but the weakness in outside market forces emerged to spark a selloff.


Sugar prices have fallen more than 1.00 cents below last Friday’s 5 1/2 year high in the space of just 2 sessions. Unless the market receives fresh bullish supply news, sugar is likely to extend the pullback. A negative turnaround in energy prices weighed on the sugar market as that is likely to weaken the near-term ethanol demand outlook. While Brazil’s Center-South domestic ethanol sales have come in above last year’s total for the last 4 1/2 months, Center-South mills have not made a significant shift in their crushing from ethanol production to sugar production.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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