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Cotton Poised to Continue Downtrend

COTTON

Traders continue to see high inflation and interest rate hikes ahead which should curb economic growth and cause weakening global demand for cotton. The market experienced a quiet inside trading day on Monday and looks poised for a resumption of the downtrend soon. Talk of optimism that China’s relaxation of Covid-related measures will boost demand has provided some support, but Chinese demand is likely to continue to trend lower. Commercial traders indicate most mills have been running 20% to 50% below their usual pace for the last several months. Brazil (world’s second largest exporter) has potential to export up to 2.25 million tonnes in 2022-23 from 1.68 million tonnes in the 2021-22 marketing year.

single cotton pod

COCOA

March cocoa came under pressure yesterday and was unable to find their footing as they finished yesterday’s trading session with a sizable loss. Sizable losses for US equity markets and the British Pound, as well as moderate losses for the Eurocurrency and Euro zone equity markets were sources of carryover pressure as they cast fresh doubt on cocoa’s near-term demand outlook. Inflation levels in the US and Euro zone have fallen back from 40-year highs posted earlier this year, and that should help strengthen demand for many discretionary items such as chocolates. The latest weekly Ivory Coast port arrivals total came in well above the comparable period last year, and that has kept their full season total ahead of last season’s pace. This helped to soothe near-term supply concerns as Ivory Coast arrivals were delayed by a dockworkers strike at the port of San Pedro, and that put further pressure on cocoa prices.

COFFEE

With the market receiving fresh bullish supply news, coffee should be able to lift clear of its late November lows. The Brazilian currency extended its pullback with a moderate loss that put pressure on the coffee market. However, reports of below-normal rainfall over Brazil’s major Arabica-growing regions last week provided coffee prices with a late source of strength. Colombia’s November coffee production came in at 1.060 million bags which was 6% below last year’s total. This put Colombia production over the past 12 months at 11.667 million bags which their lowest 12-month running total since June of 2014. In addition, the International Coffee Organization said that coffee exports out of Africa during October came in at 1.10 million bags which compares to 1.13 million last year.

SUGAR

Unless key outside market can regain their strength, sugar is vulnerable to further selling with the weak technical action yesterday. There are reports that India’s cane crop is showing lower than expected yields due to weather extremes during the second and third quarters. This could result in India’s 2022/23 sugar production falling 7% below last season’s total, and could result in India’s full season sugar exports coming in at 8 million tonnes or smaller. In addition, significant early strength in crude oil and RBOB gasoline provided the sugar market with early support as that would help to soothe near-term ethanol demand concerns. The energy markets turned sharply to the downside and dropped far into negative territory late Monday, which combined with a more than 1% pullback in the Brazilian currency undercut sugar’s early strength.

 

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