Cotton Sees Sweeping Reversal
December cotton had an outside reversal day yesterday after trading to its lowest level since August 2 and then closed above Tuesday’s high. The market drew support from the grains, which rallied off fears of an escalation in the Russia/Ukraine war after Putin called up 300,000 reservists to fight in Ukraine. The FOMC meeting results came out after the cotton market closed, and rates were raised 75 basis points as expected. The dollar rallied sharply in the immediate aftermath of the release to its highest level since June 2002. A strong dollar is negative to cotton, but the Ukraine situation could dominate over the near term. The weekly exports sales report comes out today. Last week’s report showed net sales of 125,800 bales.
Cocoa prices held up relatively well in spite of Wednesday’s turbulence in global markets, but its demand outlook was not done any favors by the FOMC meeting results. If global risk sentiment can take a positive shift following yesterday’s eventful session, cocoa may be able to regain upside momentum. News of Russia’s military mobilization diminished European near-term demand prospects which weighed on cocoa prices. In addition, sharp selloffs in the Eurocurrency and British Pound put carryover pressure on the cocoa market as that will make it more difficult for European grinders to acquire near-term supplies. The Fed’s latest “dot plot” showed higher 2023 rates than the market was expecting, which indicates the Fed’s outlook that high inflation levels will be with us well into next year. The supply side remains supportive as lower fertilizer use will limit2022/23 West African cocoa production to having little if any improvement on this season’s output.
Coffee was unable to extend this week’s recovery move, but the market remains on-track for a positive weekly result in spite of a negative shift in global risk sentiment. The market continues to receive bullish supply news from several major producing nations that can underpin coffee prices. Global risk sentiment was already subdued following news of Russia’s military mobilization, but a negative reaction to the FOMC meeting results may lead to a pullback in restaurant and retail shop consumption that will diminish coffee’s near-term demand outlook. The Brazilian currency fell back from a 1-week high into negative territory, which was a source of carryover pressure on the coffee market.
Sugar prices have recovered back into the July/Sept consolidation. With the market waiting on key supply news from India, sugar may be able to extend its recovery and complete a positive weekly reversal. A sharp rally in energy markets following Russia’s military mobilization provided early carryover support to sugar prices, but that was followed by a sizable pullback in crude oil and RBOB gasoline following the EIA report which pressured the sugar market into negative territory. Prospects that India’s 2022/23 exports will have a sizable decline from this season strengthen prices late in the session, as the market is still waiting on concrete details on the size of their first export tranche.
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