Political Unrest Affecting Cocoa
Near-term supply issues have been shifting bullish over the past few months, but a flare-up of supply issues has quickly lifted the market back to within striking distance of 8-month highs. After consolidating over the past 5 sessions, December cocoa broke out sharply to the upside and reached a 1 1/2 week high. Ivory Coast’s Constitutional Court approved current President Ouattara’s run for a third term while rejecting the candidacies of previous President Gbagbo and ex-rebel leader Soto, and that sparked unrest in several areas of the nation late Monday and early Tuesday. Although the political tensions are lower than they were 10 years ago, this year’s election has strong echoes of the 2010 election that resulted in the 2010/11 Ivory Coast civil war that led to an export embargo and cocoa prices reaching their 21st century highs above the $3,800 level.
December coffee followed through on Monday’s downdraft with huge early losses and traded below the 50-day and 200-day moving averages to reach a 4-week low. However, it recovered a sizable portion of that lost ground. Forecasts for Brazil’s major Arabica-producing regions showing rainfall starting next week were a major source of pressure as that will help to soothe concerns with drier than normal conditions seen over the past few months and could help to improve moisture levels during their flowering period.
December cotton remains in a steady uptrend. The market held most of Monday’s gains and closed at its second highest level since February 26. News that Hurricane Sally weakened to a category 1 storm may have eased some concerns about potential crop damage, but she is still expected to bring heavy rains, which could damage open bolls. News that the Trump Administration had shelved plans to impose import restrictions on cotton and tomato products from China’s Xinjiang region and instead focused on narrower bans on products from five specific entities (including a cotton producer) may have eased concerns about the potential impact on US cotton exports to China.
Sugar prices continue to hold in a short-term consolidation zone. A bearish global supply outlook will make it difficult for sugar to sustain a recovery move, but carryover support from key outside markets could lift sugar prices. The Brazilian currency extend its recovery move to an early 5-week high yesterday and remains well clear of its record low from late April. Continued strength in their currency eases the pressure on Center-South mills to produce sugar for export.
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