Sugar Prices Lose Value
After reaching a 5 1/2 year high just before the Christmas holiday, sugar prices lost more than 5% in value over the final 5 sessions of 2022. With a bearish shift in the Brazilian production outlook, sugar is vulnerable to further downside price action. Crude oil and RBOB gasoline prices had a strong finish to the year which provided the sugar market with carryover support. The Brazilian currency lost 1.2% in value and reached a 1-month low, however, and that pressured the sugar market as that will give more incentive to Brazil’s Center-South mills to produce sugar for the global export marketplace. Brazil sugar exports for the month of December reached 2.223 million tons from 1.943 million last year. Due to early-season cane harvesting delays, over 60 Center-South mills continued their crushing operations into December, with some of those mills expected to operate during January. As a result, 2022/23 Center-South sugar production continues to climb further ahead of last season’s pace.
After reaching a 2 1/2 year low in late September, cocoa prices rose by more than 22% in value to reach an 8 1/2 month high last Tuesday. Given bullish supply developments and an improving demand outlook, cocoa’s fourth quarter recovery move is likely to resume during the first quarter as the market may head towards a retest of last February’s high. Many West African cocoa farmers were unable to use adequate fertilizers and pesticides last year as Russia’s invasion of Ukraine led to high costs and a lack of availability. This is having a significant negative impact on cocoa trees, particularly in Ghana and Nigeria which have seen outbreaks of black pod diseases. As a result, 2022/23 global cocoa production is unlikely to have any sizable increase from last season’s 4.823 million tonnes. While 40-year high inflation levels reduced demand for discretionary purchases such as chocolate, last season’s global cocoa grindings reached a record high of 5.083 million tonnes. Recent inflation readings are showing a sustained pullback, and that should give an additional boost to cocoa demand during 2023.
The coffee market spent the second half of December with choppy price action as it was unable to lift decisively above its early December high. Concerns over lukewarm demand weighed on coffee prices throughout the fourth quarter as high inflation levels diminished out of home consumption. ICE exchange coffee stocks rose by 6,485 bags on Friday to finish 2022 at 814,686 bags, which was a second monthly increase in a row and their highest month-end total since June. On the other hand, this was more than 726,000 bags below their 2021 year-end total (down 47%) and was the lowest year-end total since 1998. Of the 9 month-end readings below 1 million bags this century, 8 occurred during 2022. Inflation gauges in the US and the Euro zone have been declining, and that should provide a boost to out of home consumption prospects. The two largest Arabica-producing nations (Brazil and Colombia, who combined account for more than 50% of global output) are both having production issues due to the La Nina weather event. Major Central American growing nations have also had a slow start to the 2022/23 season with October and November export totals well below the previous year’s levels.
The short-term technical action remains positive as a weak US dollar and supportive news for the weekly export sales data helped to support the market. Cotton futures experienced the biggest annual drop since 2014 with the most active contract down about 26% for the year. Perhaps the cheaper price was enough to support a little better weekly export sales data. We remain concerned that demand factors will be slow to recover, and that the cotton pipeline is a bit clogged. The market has experienced higher lows since the October 31 low, with further lows on November 28, December 13, and December 28. Cumulative sales have reached 72.5% of the USDA forecast for the 2022/2023 marketing year versus a 5 year average of 75.3%. Sales need to average 92,000 bales per week to reach the USDA forecast.
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