Big Volume in Choppy Cotton Trading
Cocoa’s abrupt turnaround yesterday came on a day that underscored multi-decade high inflation levels for many developed economies. If market focus is shifting back towards the supply side, cocoa prices should extend their recovery move. The latest UK CPI reading showed the first “double-digit” year-over-year inflation result for a G7 nation, and that could weaken cocoa’s near-term demand outlook as consumers pull back on discretionary purchases.
Supply issues in Brazil and Colombia may continue into the fourth quarter, and that can help the coffee market find its footing. A very strong UK CPI reading weighed on coffee prices as multi-decade high inflation has weakened the outlook for out-of-home coffee consumption, and that was a source of early pressure. In addition, continued weakness in the Brazilian currency also weighed on coffee prices.
After six straight days of closing higher, cotton appears to have found value. It sold off on Wednesday and was limit down at one point but settled off its lows. The market had become overbought and now appears to be consolidating its significant 37-cent gain (+45%) from the July 15th low. Last Friday’s USDA report sparked the most recent leg of the rally, as it lowered US 2022/23 production substantially and put ending stocks at their lowest level on record going back to at least 1960/61. China officials are set to buy 6,000 tonnes (27,558 bales) of cotton for state reserves on August 18.
With the overbought condition and a continued drift lower in crude oil prices, which are hovering near the lowest level since March 17, the market looks vulnerable to at least a short-term correction. Retail prices for gasoline in Brazil were adjusted lower again this week, and that has traders nervous that Brazil millers will produce more sugar and less ethanol. Sugar prices rebounded from a new 1-week low into positive territory, but could not hold onto strength late in the day and closed lower for the third session in a row.
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