Sugar Prices Lose Value
Sugar prices had an abrupt change in fortune going into 2023 as they lost over 2 cents in value since the Christmas holiday weekend. While it is receiving carryover support from key outside markets, sugar needs a significant shift in its supply outlook to put some brakes on this current downdraft. March sugar maintained downside momentum as it reached an 8-week low before finishing Friday’s trading session with a sizable loss. While crude oil had a modest gain, a 2-week low in RBOB gasoline prices weighed on the sugar market as that will diminish near-term ethanol demand prospects. Several mills are still operating this month, so this season’s Center-South sugar production will climb further ahead of last season’s pace. Better than expected early production from India has been a source of pressure on sugar prices as this will increases the chances that their second export tranche will be 3 million tonnes or larger.
Cocoa prices had a volatile start to the year, but the market continues to have a bullish fundamental setup. If global risk sentiment and key outside markets can regain a positive tone, cocoa should be able to regain and sustain upside momentum. Last Friday’s decent US jobs data may keep the Fed in a hawkish policy stance, which in turn pressured the cocoa market as that could have a negative impact on demand for discretionary items such as chocolates. However, the latest Euro zone CPI reading had a larger than expected decline which reflects a consistent pullback in European inflation, and that can help to strength the region’s first quarter cocoa demand outlook. In addition, sizable gains in the Eurocurrency, British Pound and US equity markets helped to soothe near-term demand concerns and strengthened cocoa prices.
Until demand concerns are soothed, the coffee market is vulnerable to further downside. ICE exchange coffee stocks increased by 9,732 bags on Friday to reach their highest levels since July, and are on-track for a third monthly increase in a row which has not occurred since mid-2021. Most ICE exchange coffee stocks are located at Euro zone warehouses, so this will remain a source of pressure on coffee prices as it reflects badly on European out-of-home consumption prospects during the first quarter. A more than 2% increase in the value of the Brazilian currency helped to keep further coffee prices in check, as a sizable recovery move to start the year should ease pressure on Brazil’s producers to market their coffee supply to foreign customers. In contrast, Colombia’s currency remains close to a 6-week low while they have seen four months in a row in which their monthly production came in below the previous year’s total.
March cotton managed to hold minor support levels last week and experienced the highest close since December 21st on Friday. Nearby contracts led the rally which is a positive development, as traders continue to believe that cotton demand will gradually improve. The surge higher in the stock market and a sharp break in the US dollar were seen as supportive forces. Talk of the oversold condition of the market plus talk that there was some increase in activity in the cash market were factors which added to the positive tone. Strength in energy prices and other commodity markets was also a factor to support. Once again, China was noted with some cancellations which is yet another bearish demand development.
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