Coffee Prices Well Supported
A nearly 5.00 rebound from its midsession low indicates that the market should remain fairly well supported on near-term pullbacks, but coffee may need to see a more positive tone from risk appetites before it can sustain the uptrend. The Brazilian currency lost more than 1% in value which clearly weighed on coffee prices as it encourages Brazilian producers to market their coffee more aggressively to foreign customers.
With an additional source of carryover pressure weighing on prices, cocoa may have further downside left to go before it can find a near-term floor. While growing regions in Ghana’s southwest remain fairly dry, Nigeria’s southwest growing areas received its first meaningful rainfall since late July which will relieve some near-term supply concerns with the market. Global risk sentiment continued to deteriorate this week which was reflected by heavy losses in US equity markets and a sharp selloff in the Eurocurrency, and that weighed heavily on cocoa as it weakens the global near-term demand outlook.
The lowest close since August 19th with managed money fund traders net long 53,231 contracts leaves the market vulnerable to a long liquidation selling trend ahead unless the USDA has surprise bullish news. The average trade estimate for US cotton production is 17.57 million bales (range 16.75-18.08 million) down from 18.08 million estimated in August. Exports are expected to increase to 15.19 million bales from 15.00 million in August.
Sugar’s positive result on a day when global risk sentiment was fairly negative and it’s key outside markets were under significant pressure is a positive technical development. The market is still likely to have a sizable global production surplus during the 2020/21 season, however, and that is likely to limit sugar’s near-term upside.
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