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Still Probing for Short-Term Low


Coffee prices have been pressured by demand concerns which have fueled a sizable loss of value since late August. The coffee market continues to have a bullish supply outlook, however, and that can help prices find a short-term low. For the week, December coffee finished with a loss of 13.40 cents (down 5.9%) which was a third negative weekly result in a row. The Brazilian currency rallied to a 6-week high which provided late support. US green coffee stocks rose by 226,801 bags during August and finished the month at 6.450 million bags. This was the sixth month in a row that US green coffee stocks showed a monthly increase as they have risen to their highest level since October 2020. In contrast, ICE exchange coffee stocks (most of which continue to be held at warehouses located in Belgium and Germany) fell by 31,318 bags on Friday, are more than 140,000 below their August month-end total and are on-track for a fifth monthly decline in a row.

coffee beans in cup


The cocoa market continues to face concern over near-term demand prospects due to high inflation and sluggish risk sentiment around the globe. Cocoa prices continue to hold their ground above the 2-year low from mid-July, however, and continue to find support from West African supply developments. For the week, December cocoa finished unchanged.  There are two weeks left to go in the 2021/22 season, with global cocoa production on-track to decline by over 300,000 tonnes from 2020/21 which would be the largest single-season decline since the 2006/07 season. With many West African producers cutting back on their fertilizer use due to high costs, the region’s production is unlikely to see a sharp increase during the 2022/23 season. High inflation has diminished the demand prospects for many discretionary items such as chocolate. In spite of that pressure, 2021/22 global cocoa grindings are projected to reach a second record high total in a row above 5 million tonnes.


December cotton sold off sharply on Friday and traded to the lowest level since August 10. The trade continues to worry about a global recession with expectations that the US Fed will hike rates 75 basis points or more in this week’s FOMC meeting, other central bankers raising rates as well to combat inflation, and ongoing concerns about the Chinese economy due to their Covid lockdowns. The dollar was sharply higher early Friday and was threatening to take out the previous week’s 20-year high, but it did close slightly lower on the day. The strong dollar can hurt US export prospects. The stock market was weaker as well, which hurts demand prospects and the stock market is down again this morning.


Sugar prices have received bullish supply developments from Brazil, the EU and China, but they have not been enough to offset sizable production levels from India and Thailand. Unless the market sees more indications of improving ethanol demand, sugar is likely to remain on the defensive. For the week, March sugar finished with a loss of 27 ticks (down 1.5%) which was a third negative weekly result in a row. Rainfall in the forecast for Brazil’s Center-South growing regions may lead to further delays in harvesting and crushing, but should benefit this season’s late-harvested cane crop which in turn pressured sugar prices going into the weekend. A 6-week high in the Brazilian currency and moderate rebounds in crude oil and RBOB gasoline provided carryover support to the sugar market, but both markets will need to see much larger price increases for mills to shift some of their crushing from sugar production over to ethanol production.

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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