Cocoa Absorbing Bearish Demand
Cocoa prices faced headwinds from the “risk off” mood seen throughout global markets as well as a flare-up of near-term demand concerns. The cocoa market was still able to hold its ground above the August and September lows, which would indicate those price levels may be a longer-term low. The latest US CPI result came in higher than trade forecasts, and that put high inflation back in a front-and-center position for the cocoa market as that is likely to diminish the outlook for many discretionary purchases such as chocolate.
Coffee may not have to face the demand adversity of other more discretionary items, but the “risk off” mood throughout global markets has kept prices on the defensive this week. While there are supportive supply factors to provide support, coffee may see further downside action before it finds a near-term floor. The latest US CPI and core CPI results were much higher than expected, so the prospect that inflation will stay at historically high levels has weakened the outlook for restaurant and retail shop coffee consumption. A more than 1.5% pullback in the Brazilian currency put carryover pressure on the coffee market as a weaker currency could make Brazil’s farmers more aggressive with marketing their remaining near-term supply.
After Monday’s big outside range day, December cotton closed lower yesterday and near the low end of the recent range. The market had closed strong on Monday despite a bearish USDA supply/demand report, but the strong dollar appeared to undermine those gains. The dollar rallied after closing lower for four straight sessions, and it recovered all its losses from that selloff for its second-highest close in twenty years, and this raised concerns about the competitiveness of US cotton on the world market. The CPI came in higher than expected, and that fueled expectations that the Fed will raise rates 0.75% at their meeting next week.
Sugar prices have been weighed down by weakness in their key outside markets and sluggish global risk sentiment, but they continue to lift clear of the August and September lows. With the market receiving fresh bullish supply news, sugar may be able to climb back above its 50-day moving average for the first time since mid-July. The Brazilian trade group Unica released their latest Center-South supply report which showed sugar production during the second half of August came in at 3.139 million tonnes which was 5.77% above last year’s total and above trade forecasts.
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