Upside in Cotton is Limited
While near-term demand remains an area of concern, the outlook is starting to improve which has helped cocoa prices to climb back toward the upper portion of its December trading range. If global risk sentiment remains positive, cocoa can extend its recovery move. A positive shift in global risk sentiment benefited the cocoa market, as that should help to soothe near-term demand concerns following several forecasts that the US and the Euro zone economies would enter into a recession next year.
If global risk sentiment continues to improve, coffee should extend this recovery move. The Brazilian currency rallied to a 6-week high which provided carryover support to the coffee market as that will ease pressure on Brazilian producers to market their coffee to foreign customers. The USDA released their biannual Coffee World Markets & Trade report and while they continue to project a sizable increase from last season, they reduced their 2022/23 global Arabica production forecast by 2.34 million bags from their June estimate.
The cotton market has seen an impressive four day rally but March cotton closed well off of the highs on Wednesday. The fact that open interest is pushing lower on the rally would suggest that short covering was the key to the buying support. This is not a good foundation for an extended move higher. Traders are anticipating a reaction to the weekly export sales data today with some talk that the global economy is doing much better, and that the China economy will be in a strong recovery over the near term.
Sugar prices have risen 7% in value over the past 7 sessions and are at the highest levels since early 2017. Of its 4 largest producers who account for 60% of global production, only the EU is expected to have significantly lower output this season which indicates that sugar may be overvalued at current price levels. However, with Brazil in the offseason, traders continue to see some tightness in supply.
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