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Cocoa Demand Outlook Improving


While cocoa’s recovery move ran out of steam at the end of last week, the market will start today’s action 120 points above its mid-January low (up 4.8%) and on-track for a fourth positive monthly result in a row. With the demand outlook showing signs of improvement, cocoa prices should remain well supported. For the week, March cocoa finished with a gain of 58 points (up 2.3%) which was a third positive weekly result over the past 4 weeks. Continued improvement in global risk sentiment along with recent gains in European and US equity markets provided carryover support to cocoa prices as they can help to soothe near-term demand concerns. The 3 major cocoa demand regions (Europe, Asia and North America) all saw their 2022 fourth quarter grindings come in below their 2021 results. Lower than expected results for December US PCE and core PCE on Friday helped to reinforce ideas of a sustained pullback in US and Euro zone inflation. The director general of Ivory Coast’s Coffee & Cocoa Council (CCC) announced plans for a new cocoa processing plant in their port city of San Pedro, while two processing plants will begin operations at the start of the 2023/24 season in October. This would bring Ivory Coast’s grinding capacity to over 1 million tonnes per year, which bodes well for cocoa’s longer-term demand outlook.

colorful cocoa pods


Coffee prices are on-track for their first positive monthly result since August after regaining more than 19% in value over the past 2 1/2 weeks. While this leaves the market vulnerable to end-of-month profit-taking and long liquidation, coffee should continue to find support from an improving demand outlook. March coffee closed higher Friday and was a sixth positive daily result in a row. For the week, March coffee finished with a gain of 15.10 cents (up 9.8%) and a second positive weekly result in a row. Although they are more than 31,000 bags above their December month-end total, there are less than 97,000 bags of coffee waiting to be graded while there has been a 64% failure rate for coffee that went through the grading process this month. Peruvian coffee growers are set to go on strike today, which also led to near-term supply concerns that have underpinned coffee prices. The Brazilian currency reached an 11-week high early Friday before it fell back into negative territory.


March cotton closed moderately lower on the session Friday and this left the market with a slight gain for the week. The US dollar was slightly higher which was seen as a negative, and US consumer spending fell for a second straight month in December. Some traders believe Brazil and India cotton are cheaper than US cotton for now, and this may cause export sales to soften over the near term. Sales have been positive for the last couple of weeks but cumulative cotton sales still significantly lag a normal pace to reach the current USDA projections. There has been plenty of talk about the potential for a sharp drop in US cotton plantings this year given the high price of competing crops. Traders continue to believe that the sharp drop in planted area could save the market from building stocks in the year ahead. But like the other grains, it appears that it will take a continued drought to expect tightening supply.


Sugar prices have risen more than 5% in value over the past 3 sessions and are back to within striking distance of a new 5 1/2 year high. Following recent bullish supply developments in India, sugar prices could finish January by reaching new high ground. A negative turnaround in crude oil and RBOB gasoline prices put early carryover pressure on the sugar market. There were further indications that India will halt this season’s sugar exports until further notice, however, which provided a boost to sugar prices. A state government official said that mills in India’s largest sugar-producing state of Maharashtra will finish this season’s crushing operations 1 1/2 to 2 months earlier than last season as heavy rainfall reduced the amount of cane available for crushing.


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