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Cotton Closed Higher Yesterday


March cotton closed higher yesterday after trading to its lowest level since November 3 earlier in the session. The US dollar was lower but was confined to Monday’s breakout range. Crude oil and the stock market were firmer, which is supportive to cotton demand. Some traders commented that the break of the past month and a half could spark some mill buying. Consumer confidence readings, especially future expectations continue to push lower. Traders are nervous that with consumer confidence readings that apparel sales will be very weak for the holiday season. If apparel sales are weak, this could clog up the cotton pipeline, and could also cause US cotton exports to drop off dramatically. In addition, COVID-19 issues in China could hurt demand.

cotton on white background


Cocoa prices appear to have put some brakes on their November pullback, and have seen two positive daily results over the past 3 sessions. Until the market can find significant relief from near-term demand concerns, cocoa will have trouble sustaining a recovery move. European and US equity markets, the Eurocurrency and British Pound all had a positive tone on Tuesday that helped to soothe cocoa’s near-term demand concerns and provided the market with carryover support. In addition, the major global chocolate maker Barry Callebaut announced that they will expand their output in North America by 15% due to increased demand from the ice cream industry, which includes building a new factory in Ontario. The increase in near-term West African cocoa supply over the past 2 weeks continues to weigh on cocoa prices, although this season’s Ivory Coast port arrival remain behind last season’s pace. With the market closed on Thursday for the Thanksgiving holiday, cocoa’s inability to climb back above the 200-day moving average leaves it vulnerable to additional long liquidation.


Coffee prices continue to have a sizable loss for the fourth quarter, but they have recovered over half of their November losses during the past 2 sessions. If improving global risk sentiment can help to soothe near-term demand concerns, coffee can see a further bounce. A more than 10 cent rally above Monday’s early low encouraged short-covering and profit-taking. Ongoing production issues in Brazil and Colombia provided underlying support to the coffee market as the La Nina weather event is forecast to last until the first quarter of 2023.  Brazil’s upcoming 2023/24 Arabica production is an “off year” crop, which normally has a sizable decline from the previous season’s output. ICE exchange coffee stocks rose by 16,916 bags on Tuesday and are on-track for their first monthly increase since April. The number of coffee bags waiting to be graded fell by more than 17,000, however, which may indicate that the wave of coffee heading to ICE warehouse may be coming to an end. If the Brazilian currency can regain its strength, coffee could benefit from pre-holiday short-covering.


Sugar prices have continued their coiling price pattern below last Wednesday’s 7-month high, but were unable to find much support better from stronger energy prices. With sizable gains for the month and quarter going into Thursday’s holiday, sugar is still vulnerable to additional long liquidation. Crude oil and RBOB gasoline were able to follow-through on Monday’s sizable recovery move and provided carryover support to the sugar market as that can help to strengthen near-term ethanol demand. The Brazilian currency fell back from a 1-week high, however, and that pressured sugar prices late in the day as further weakness could encourage Brazil’s Center-South mills to produce sugar for the global export market. After a slow start to the season, Brazil’s Center-South 2022/23 sugar production and cane crush are only 2.5% to 3% behind last season’s pace while sugar share of crushing is now 2.5% ahead of last season’s pace.


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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.

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