Another Global Production Deficit

COCOA

After reaching a 13-month high at the start of March, the cocoa market lost more than 250 points (8.8%) over the next two weeks. Market concerns were fueled in part by high inflation, which weakens demand for discretionary items such as chocolate. If there is a sustained rebound in global risk sentiment during the second and third quarters, we could see 2022/23 global grindings forecasts revised higher. There were early forecasts that 2022/23 grindings would reach a record high for the third season in a row, but in their latest report, the International Cocoa Organization (ICCO) forecast global grindings at 5.027 million tonnes, down 30,000 from last year. Keep in mind that this would still be the second highest grindings total on record and only the second time above 5 million. The ICCO has projected second global production deficit in a row in 2022/23 and the lowest stock/usage ratio since the 1984/85 season.

COFFEE

Coffee prices were unable to break out of their March consolidation zone as they were weighed down by a negative shift in global risk sentiment. While near-term demand will remain uncertain through the end of the first quarter, coffee has bullish supply developments that can underpin prices. Out of home consumption prospects have been diminished by the negative shift in global risk sentiment, and that weighed on coffee prices early in the day. While inflation levels have been declining in many developed economies, restaurant and retail shop demand may be hurt if risk appetites remain subdued. Central American exports have come in above last year’s total during the first quarter, and that has also pressured the coffee market as that has helped to ease near-term supply concerns in many regions. Australia’s Bureau of Meteorology has joined the US Climate Prediction Center in declaring an end to the 2021/23 La Nina weather event.

COTTON

May cotton closed lower on Friday after probing to a new low for the move. A risk-off attitude triggered by ongoing banking concerns triggered long liquidation. The stock market was under pressure, and crude oil was sharply lower, and both of these were negative to cotton. The dollar was lower as well, which would normally be supportive to cotton and other export commodities. Last week’s export sales report showed net sales of 238,295 bales for the week ending March 9, which was an improvement over 46,185 from the previous week. However, cumulative sales for 2022/23 only have reached 10.869 million bales, which is the lowest for this point in the marketing year since 2015/16. Sales have reached 97% of the USDA forecast for the marketing year versus a five-year average of 95%.

SUGAR

Sugar prices only had initial upside follow through in the wake of Thursday’s outside-day higher close as key outside markets remain a significant source of pressure. Unless there is a significant turnaround in global risk sentiment, sugar may remain on the defensive. A sizable pullback in crude oil and RBOB gasoline prices put carryover pressure on the sugar market as that may weaken near-term ethanol demand. A selloff in the Brazilian currency also weighed on sugar prices as that may encourage Center-South mills to maintain sugar’s share of crushing. In addition to unharvested cane from this season, Brazil’s 2023/24 crop is expected to see a sizable increase in cane crushing. As a result, Brazil could see a sizable increase in near-term supply over the next month. In contrast, mills in India’s top-producing state of aharashtra are starting to wind down their operations due to a lack of cane, which has led many analysts to downwardly revise their 2022/23 India sugar production forecasts. As a result, this makes it more unlikely that India will allow additional sugar exports this season.

Interested in more futures markets?  Explore our Market Dashboards here.