Cocoa Remains in Solid Uptrend

COCOA

Cocoa has benefited from improvement in near-term demand prospects and the market remains in a solid uptrend. Global risk sentiment remains fragile at the start of this year, however, so cocoa remains vulnerable to a near-term pullback. Italy joined Germany and France with seeing a pullback in year-over-year CPI results as the prospect of an extended decline in European inflation provided cocoa with underlying support. Overall Euro zone CPI will be released early in today’s action and is expected to fall back below the 10% year-over-year level, which could provide cocoa with an early source of carryover support. While this may give a boost to European demand for discretionary items such as chocolate, a strong set of US jobs data could increase the Fed’s rate hike trajectory and may diminish cocoa’s first quarter demand outlook.

COFFEE

Coffee prices are on a 5-session losing streak as they continue to be pressured by near-term demand concerns. Colombia’s December coffee production came in at 981,000 bags which was 29% below last year’s total, which provided underlying support to the coffee market. Colombia’s 2022 production came in at 11.084 million bags, which compares to 12.577 million in 2021 and was their lowest annual production total since 2013 In contrast, Colombia’s 2019 annual coffee production came in at 14.752 million bags which was a 27-year high. A negative shift in global risk sentiment dampened out-of-home consumption prospects and added to the negative tone. The market will have Euro zone CPI and US jobs data during today’s action, and those results could also impact out-of-home demand prospects.

COTTON

The market remains in a short-term downtrend due to poor demand, but managed an impressive recovery bounce yesterday. It was still an inside trading session and the market managed to rally even with bearish outside market forces. Further strength in the US dollar and another sharp break in the stock market were seen as bearish forces. Higher crude oil prices plus hopes of a revival in China demand were seen as positive forces. It seems to be a stretch to believe that China demand would suddenly improve over the short run, and it also seems to be a stretch to expect global consumer demand for apparel will improve soon, or even stabilize. In order for China to be more aggressive importer of US cotton, apparel sales to other countries would need to be improving. Traders also seem hopeful that weekly export sales news will begin to improve soon.

SUGAR

Sugar was able to receive some badly-needed carryover support from key outside markets, but that was not enough to put any brakes on a more than 8% loss in value since the Christmas holiday weekend. Unless it can receive bullish supply news, sugar is likely to remain on the defensive. The market has closed lower for six out of the past seven trading sessions. Crude oil and RBOB gasoline rallied from early lows while the Brazilian currency regained more than 1% in value, both of which provided the sugar market with carryover support. Expectations this season that Brazil’s Center-South sugar production will see a sizable increase over last season continues to weigh on sugar prices this week. Brazil’s Center-South mills that are still operating have little incentive to switch their crushing from sugar production to ethanol production with the Brazilian government extending a tax break on gasoline.

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