Consolidation Trade Continues in Sugar
While cocoa will see a record high global grindings total above 5 million tonnes, near-term demand concerns remain a source of pressure on the market. Until there is a significant rebound in global risk sentiment, cocoa will have to rely on bullish supply factors to underpin prices. A negative shift in European risk appetites following the shutdown of the Nord Stream One gas pipeline put significant pressure on the cocoa market. Europe is traditionally the region with the largest share of global cocoa grindings, which includes Netherlands and Germany which are usually 2 of the 4 largest grinding nations.
Coffee prices have been pressured by sluggish global risk sentiment over the past few weeks, but a bullish supply outlook has kept the market well clear of its August lows. A sharp selloff in the Brazilian currency put coffee prices on the defensive early yesterday, as extended weakness in their currency could encourage Brazil’s farmers to be more aggressive with marketing their remaining near-term supply.
December cotton seems to have put in a short-term low. The higher close came despite the US dollar making a new 20-year high, which makes US cotton exports less competitively priced. The market may have drawn support from news that the city of Shenzhen, China eased its Covid lockdown on Monday as infections showed signs of stabilizing. It was also reported that the Pakistan government is allowing the country’s textile industry to import as much cotton as it needs after a flood wiped out one-third of their crop.
Sugar prices have been unable to sustain upside momentum over the past few weeks as they continue to be weighed down by weakness in key outside markets. With the supply side taking a bearish shift, sugar remains vulnerable to further price erosion. A negative turnaround in energy prices put carryover pressure on the sugar market as that will make it difficult for near-term ethanol demand to improve. In addition, a more than 1.5% decline in the Brazilian currency also weighed on sugar prices as that encourages Brazil’s Center-South mills to produce more sugar for export.
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