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Cotton Remains Overbought


The technical developments look a bit bearish and the market remains in an overbought condition. Traders cited end-of-month liquidation and possibly index fund rollovers. They were also cautious ahead of the FOMC meeting on Wednesday and other central bank meetings this week, as a stronger than expected rate hike would increase the chances of a recession. The dollar was higher and the stock market was lower, and both of these moves were negative for the cotton market. Crude oil was lower as well, which was also negative for cotton because lower petroleum prices make man-made fibers more competitively priced.


The market is vulnerable to profit-taking and long liquidation. Cocoa has seen positive supply/demand developments that can help the market find its footing. Forecasts for hot and dry weather this week across many West African growing areas continue to underpin cocoa prices. The latest weekly Ivory Coast port arrivals total came in below the comparable period last year, although the full-season total continues to be ahead of last season’s pace. There was above-average rainfall over several West African growing areas last week, however, and that may have weighed on cocoa prices. In addition, a negative shift in global risk sentiment weakened cocoa’s near-term demand outlook which also fueled profit-taking. There will be a large set of European data early today including a fourth quarter Euro zone GDP reading, so a set of mostly positive results should help to soothe near-term European demand concerns.


While the coffee market has received bullish supply/demand developments over the past few weeks, the market has been unable to climb above its November and December highs. With global risk sentiment taking a negative shift this week, coffee remains vulnerable to profit-taking and long liquidation. March coffee closed higher for a seventh positive daily result in a row. A mild pullback in the Brazilian currency weighed on coffee prices early in the day as that may encourage Brazil’s farmers to market their remaining near-term supply. Indications that several major Arabica-growing nations are having production issues continues to underpin coffee prices.


Sugar prices have been able to rally more than 7.7% over the past week despite recent weakness in their key outside markets. While there have been supply issues that have underpinned prices late this month, this season’s global production should still come in close to last season’s output total. March sugar pushed to a new 5 1/2 year. Expectations for this season’s production from India and the EU have been significantly dialed back over the past month, and that continues to be a source of strength for the sugar market. In addition, the banning of certain pesticide use could lead to reduction in 2023/24 EU beet sugar planted area, which has also underpinned sugar prices late this month. While there is a growing consensus that India’s 2023/24 production will fall below last season’s total, the question of whether India will allow additional sugar exports remains unanswered. Indications that Brazilian ethanol demand will improve following the Petrobras price hike in wholesale gasoline has also underpinned sugar prices this week.


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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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