Coffee Market Oversold
After falling more than 20 cents below its late February highs, coffee prices were able to find their footing in spite of severely negative global risk sentiment going into the weekend. With the market still technically oversold, coffee prices may be able to bounce. Brazilian and Colombia coffee exports have come in below last year’s total so far this year, which has provided the market with underlying support. The US Climate Prediction Center has declared the end of the mid-2021/early 2023 La Nina, and that should result in both areas seeing a normal weather pattern over the next few months. With back-to-back La Ninas leading to drier than normal conditions over Brazil’s growing areas for much of the past 2 1/2 years, coffee trees in the region may not return to normal yields until the 2024/25 season. In addition, the prospect of Brazilian port congestion as their 2023/24 crop is exported also supported prices.
While inflation levels have been in a longer-term decline since last year, the negative shift in global risk sentiment late last week has put cocoa’s demand concerns back into a front-and-center position. Even with recent bullish supply developments in West Africa, cocoa is likely to be pressured by additional long liquidation. While the US jobs data saw mixed results, the collapse of Silicon Valley Bank weighed heavily on global risk sentiment. This weighed on cocoa prices as that may weaken its near-term demand outlook. Ideas that a tight near-term supply situation in West Africa may be relieved as the mid-crop harvest reaches full speed next month also weighed on cocoa prices going into the weekend. Keep in mind that many analysts are projecting cocoa will have a second global production deficit in a row during the 2022/23 season.
May cotton collapsed on Friday, falling to its lowest level since November 28 and closing limit-down. Large cancellations by Pakistan of US cotton reported in last week’s export sales report has raised concerns about global demand. Pakistan has been the second largest buyer of US cotton for the current (2022/23) marketing year. There was a report about Pakistan facing a crisis with foreign exchange. A strong jobs report for February also raised expectations that the US Federal Reserve would extend its tightening policy and increase the chances for recession. The stock market fell sharply on Friday, and this undermined cotton prices.
Sugar prices were able to overcome negative global risk sentiment late last week and will start this week’s action within striking distance of a new 6-year high. With a significant increase in Brazil’s near-term supply expected over the next month, sugar prices are overvalued at current levels. A pullback in the Brazilian currency put early pressure on sugar prices as that may encourage Center-South mills to produce sugar for the export market. Later in the day, a rebound in crude oil and RBOB gasoline prices provided carryover support to the sugar market as that can help to shore up ethanol demand in Brazil and India. Recent forecasts have dialed back this season’s production estimates for India and Thailand which continues to underpin sugar prices. However, early forecasts for Brazil’s upcoming 2023/24 sugar production have it coming in well below this season’s output. The Brazilian trade group Unica released their latest supply report which showed no sugar was produced in the Center-South region during the second half of February. Center-South domestic ethanol sales during February were 0.9% below last year’s total, which was their first year-over-year monthly decline since July.
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.