Cocoa on Track for Positive Weekly Result
The cocoa market has held up fairly well over the past two sessions and will start the day on-track for a positive weekly result. If cocoa can hold its ground during today’s eventful session, the market will remain in position to extend its recovery move. The latest UK CPI reading came in lower than trade forecasts but still posted a “double-digit” year-over-year result, which weighed on cocoa prices as that may indicate that inflation will remain at very high levels well into 2023. While a rebound in global risk sentiment helped cocoa to regain lost ground, the FOMC’s quarterly economic projections saw upward adjustments to their PCE and core PCE forecasts for 2023 and 2024 which indicates US inflation may remain fairly high over the next few years. Early today, the Bank of England and European Central Bank are both expected to have rate hikes and will have post-meeting comments on high inflation which could put further pressure on cocoa prices. The Executive Director of the International Cocoa Organization said 2022’s holiday season should see global chocolate consumption return to pre-pandemic levels due to less Covid restrictions. Europe is the region with the largest share of cocoa grindings, so inflation guidance from the ECB and BOE could add additional pressure to cocoa prices.
Coffee prices have put together their first 3-day winning streak since August and remain on-track for a positive weekly result. While the demand outlook has been pressured by inflation guidance, coffee should continue to find support from a bullish longer-term supply outlook. A sharp selloff in the Brazilian currency weighed on coffee prices as that could lead to Brazil’s farmers becoming more aggressive with marketing their remaining near-term supply. Recent indications that inflation levels are starting to recede kept coffee prices at the high end of Monday’s updraft as they can help to shore up out-of-home consumption levels. The latest FOMC economic projections had upward revisions for their US inflation forecasts over the next 2 years, and there will be inflation guidance from the European Central Bank and Bank of England early today. As a result, the outlook for restaurant and retail shop coffee consumption may be diminished if inflation is expected to remain at high levels over the next few years.
The cotton market seemed to have the supportive outside market forces in order to follow-through from Tuesday’s positive technical developments. However, the market closed lower yesterday which is disappointing to the bulls. Energy markets were sharply higher and the stock market was up strong before the Fed’s decision on interest rates. March cotton remains in a choppy trading range since early November as traders feel the massive break during September and October pushed the market down to bargain price levels. However, the break in prices does not seem to have stimulated export demand and traders will monitor the weekly export sales report to see if demand is improving. With slow consumer demand for apparel in Asia, Europe and the US, it may be difficult to keep the pipeline flowing and this could cause import demand to drop further.
Sugar prices are now within striking distance of a new 7 1/2 month high, due in large part to this week’s recovery move in energy prices. The global supply outlook remains bearish, however, and that can leave sugar vulnerable to a near-term pullback. Crude oil and RBOB gasoline extended their rebound to new 1 1/2 week highs which provided carryover support to the sugar market as it should provide a boost to ethanol demand in Brazil and India. While ethanol demand has seen some improvement during the fourth quarter, many mills in Brazil’s Center-South will continue to operate into early 2023 and will keep sugar’s share of crushing well above year-ago levels. In fact, India’s government is encouraging their mills to divert their excess cane to ethanol production in order to reduce their nation’s carryover sugar stocks. India’s 2022/23 sugar output may not meet early forecasts with the NFCSF trade group estimating this season’s production at 35.0 million tonnes versus 35.9 million last season. Keep in mind, however, that the ISMA had India’s October/November sugar production 1.5% ahead of last year’s pace.
Interested in more futures markets? Explore our Market Dashboards here.
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.