Mixed Softs Outlook
The market experienced follow-through buying overnight which is a positive technical development. With the market focusing on critical second quarter grindings results next week, positive guidance from a key market player could help support. Cocoa was able to overcome sluggish European and US equity markets and a sharp selloff in the Eurocurrency, both of which were sources of carryover pressure. The major global chocolate market Barry Callebaut reported their latest quarterly sales were down 14.3%, which was not a surprise with most major economies in some “lockdown” level during that timeframe.
Coffee prices have had only 1 positive daily result over the past 5 sessions. The market continues to stay well clear of the late June lows in spite of subdued global demand and a likely record-high Brazilian crop. As a result, it may not take much in the way of fresh positive supply/demand news for a bounce. Forecasts calling for warmer and drier weather over Brazil’s key Arabica growing of south Minas Gerais through the end of next week was a source of pressure as that pattern minimizes the chances for potential frost damage over the next few weeks.
Follow-through selling overnight helps to confirm a short-term peak. Key resistance for December cotton is at 64.28. The hook reversal to close below this level is a bearish short-term technical signal. The reversal comes from an overbought condition. The early buying pushed the market up to the highest level since March 5. The market may have seen some profit taking ahead of the USDA supply demand report today. Some of the selling might have been brought on by the export sales report, which was disappointing relative to last week.
Sugar prices have found significant carryover support from the energy markets over the past few months. With fresh evidence of the sharp increase in Brazilian production, sugar prices are likely to remain on the defensive. A pullback in the Brazilian currency and a sizable selloff in energy prices weighed on sugar prices as it will encourage Brazil’s Center-South mills to produce more sugar as the expense of ethanol.
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