Coffee Market Demand Outlook Improves
Coffee prices have risen 16.50 cents above their early January low (up 11.6%) as the market is starting to see improvement in its near-term demand outlook. If global risk sentiment continues to improve, coffee may remain in a short-term uptrend. A mild gain in the Brazilian currency gave a boost to coffee prices late in the day as that should ease pressure on Brazil’s farmers to market their remaining coffee supply to foreign customers. Brazil’s upcoming Arabica production has seen a wide range of estimates, but their 2023/24 crop is an “off-year” in their biannual cycle which normally results in lower output than the previous season. Coffee that went through the ICE exchange grading process during January had a 64% failure rate so far, however, so their coffee stocks are closing in on a near-term top.
Cocoa prices will start today’s trading 101 points above last Friday’s spike low (up 4%) as the market is receiving carryover support from key outside markets as well as benefiting from recent bullish supply news. Global risk sentiment (European and US equity markets) was able to maintain a positive tone through the weekend, which in turn provided carryover support to the cocoa market. There is light rainfall in the forecast for some West African growing areas early next week, but most days through the end of next week will have mostly dry conditions with daily high temperatures above 95 degrees Fahrenheit, and that has taken a toll on West Africa’s late main crop and mid-crop production. With a decline in inflation helping to strengthen demand prospects, there is an increase chance for a 2022/23 global cocoa production deficit.
The market remains in a short-term uptrend as outside market forces, including a move in the stock market to the highest level since mid-December, have helped to support active buying. The buying yesterday pushed March cotton up to the highest level since December 21, and new crop December cotton up to the highest level since September 1. A further advance in oil prices and a more positive tilt toward risk sentiment helped to support as well. In addition, we saw strong export sales data last week. China was the biggest buyer on the week, as traders believe that the opening up of the China economy will spark better demand down the road. Traders also believe that consumers will be more willing to spend on apparel as the inflation rate continues to decline.
With recent bullish supply developments gaining little traction in the market, sugar remains vulnerable to a sizable near-term pullback. The last COT update showed Managed Money fund traders were net long 177,721 contracts, and this leaves the market vulnerable to long liquidation selling if support is violated. Crude oil and RBOB gasoline made new 9-week highs early yesterday which provided the sugar market with carryover support, as that can help to strengthen near-term ethanol demand. Brazil’s Center-South production continues to increase over last season’s output, and that has been a major source of pressure on the sugar market as that should help to offset lower production from India. While there have been conflicting reports on whether India will agree to a second export trance, their 2022/23 production should remain large enough to accommodate additional exports this season. EU farmers will not be able to use neonicotinoids on their upcoming crops, which should result in many farmers choosing not to plant sugar beets during the 2023/24 season.
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.