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Choppy/Volatile Trade But Support Should Hold


The cocoa market has received second quarter grindings data showing that demand in two important regions (Europe and Asia) saw modest improvement from last year’s levels. However, the prospect of lukewarm to sluggish demand over the rest of the year may keep cocoa prices on the defensive. For the week, September cocoa finished with a loss of 24 points (down 1.0%) which broke a 2-week winning streak. A negative shift in global risk sentiment weighed on cocoa prices, while a lower than expected second quarter North American grindings total added further pressure on the market.


Coffee has been unable to sustain upside momentum since mid-February as high inflation has diminished the outlook for restaurant and retail shop consumption. In spite of volatile price action over the past few weeks, there are signs that the mid-July lows will hold. For the week, however, September coffee finished with a gain of 6.90 cents (up 3.5%) which broke a 2-week losing streak. The Brazilian currency has lost nearly 14% in value since the end of May, and that continues to be a source of pressure on the coffee market as it encourages Brazil’s producers to market near-term supply. A negative shift in global risk sentiment also weighed on coffee prices as that may weaken out of home coffee consumption.


December cotton closed lower on Friday after spending the session inside Thursday’s range. The market closed higher on the week and up sharply from the previous week’s 10-month low. A Chinese official has warned of more flash floods and mudslides in Xinjiang (driven by glacial melt) as well as a widespread heatwave threaten their cotton crop. The Texas crop remains under threat by a long-lasting drought that has extended into a second year. The US 1-5-day forecast has little or no rain for the west Texas region but plenty of rain for the Delta and Southeast. The longer-term forecasts offer some chance of relief.


Sugar’s downdraft last week has erased most of its July recovery move and left the market within striking distance of a new 4 1/2 month low. While a rebound in key outside markets can help, sugar may also need to see bullish supply news to put some brakes on this current selloff. For the week, October sugar finished with a loss of 1.36 cents (down 7.0%) which broke a 2-week winning streak. The Brazilian currency remains in close proximity to a new 6-month low, and that continues to be a source of pressure on the sugar market as its significant weakness since early June may encourage Brazil’s Center-South mills to produce more sugar for the global export marketplace.

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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