Coffee Looks For Demand Improvement
September coffee managed to find its footing on Wednesday after a three-day losing streak and it was higher again overnight, but to maintain upside momentum, the market probably needs to see more signs that demand is improving, as the Brazilian harvest pressure could emerge. ICE exchange coffee stocks fell by 311 bags on Tuesday to reach a new low for the year, but there are 10,887 bags waiting to go through the exchange grading process. As expected, the FOMC did not raise rates this month, but economic projections after the meeting showed the Fed making two more rate hikes by the end of the year, which could have a dampening effect on out-of-home consumption in the US. A new 1-year high in the Brazilian currency underpinned prices yesterday, as that eases pressure on Brazil’s farmers to market their supplies to foreign customers.
Reports this week of flooding in Ivory Coast have raised concerns about the mid-crop, and El Nino is expected to have a negative impact on upcoming West African production. Sharp gains in the Euro and British Pound on Wednesday provided carryover support to the cocoa market on ideas it would make it easier for European grinders to acquire near-term supplies. This week’s US CPI and PPI readings showed evidence of declining inflation, and that should strengthen demand for discretionary items such as chocolate. However, after Wednesday’s close, the FOMC’s economic projections showed Fed members expect to make two more rate hikes by the end of the year.
Unless there is a bullish surprise in the weekly US export sales report today, we would expect December cotton to continue to work lower. The stock market declined off its highs during Fed Chair Powell’s press conference Wednesday afternoon, and it was moderately lower overnight. If a risk-off mood develops, it could put additional pressure on the cotton market. US crop conditions slipped a little last week, but at 49% good/excellent they were slightly better than last year and above the 10-year average. Texas was better than a year ago but still behind average. Soil moisture has improved in West Texas and the Panhandle this spring, and US cotton area under drought has fallen from 46% in early April to 19% last week. However, it does not look like there is much chance of improvement in soil conditions soon.
Sugar shook off a generally bearish Brazilian Unica supply report and sluggish energy prices to regain upside momentum on Wednesday, but the market could need more bullish supply news to extend its rally. News this week that India’s government would ban sugar exports until next year has provided underlying support to the market, as that could keep several million tonnes of sugar out of the global marketplace. This month’s rally to a 1-year high in the Brazilian currency has eased pressure on Center-South mills to produce sugar for export, and that has also given a boost to sugar prices. However, increased production in China this year and a strong harvest in Brazil could limit the market’s upside.
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