Sugar Vulnerable to Near-Term Pullback

SUGAR

Sugar continues to see wide-sweeping intra-day price action and while receiving significant carryover support from key outside markets, it remains well below its mid-November high. With the market having bearish longer-term supply fundamentals, sugar remains vulnerable to a near-term pullback. Sizable rallies in crude oil and RBOB gasoline provided carryover support to the sugar market as they should help to strengthen near-term ethanol demand in Brazil and India. In addition, reports that heavy rainfall in Brazil has caused fresh delays in harvesting and crushing cane, as well as transporting sugar to their major port facilities, and that provided an additional boost to sugar prices. The French beet growers group CGB forecast their nation’s 2022/23 sugar beet crop would be 7% below last season’s total. CGB also projected a decline in 2023/24 beet planted area as farmers switch to other crops, which increases the chances for 2023/24 EU sugar production to decline from this season’s output total. While EU production looks to be heading lower, Brazil, India and Thailand are on-track for higher output this season.

COCOA

Cocoa prices were vulnerable to end-of-month profit-taking and long liquidation, but received fresh bullish supply news that underpinned the market. With a significant positive shift in global risk sentiment after Wednesday’s close, cocoa should extend its recovery move. The International Cocoa Association (ICCO) released their latest quarterly supply/demand report which estimated a 2021/22 global supply deficit of 306,000 tonnes, an increase of 76,000 from their August deficit estimate and is now the largest deficit on record. As a result, the ICCO’s 2021/22 global stocks/usage reading fell from 33.2 down to 31.9, which is at its lowest level since the 1984/85 season. After cocoa had finished trading, dovish comments from Fed Chair Powell triggered a huge rally in US equity markets, the Eurocurrency and British Pound, all of which should provide carryover support to cocoa. While the ICCO data covers last season, the lack of adequate fertilizer and pesticide use will make it difficult for West African nations to see this season’s production climb well above last season’s totals.

COFFEE

Coffee prices have now risen nearly 16 cents above their mid-November lows (up 10.3%) which is the largest rebound from a new low for the move since the fourth quarter downtrend began in early October. With the demand outlook taking a positive shift, coffee is in position to extend its recovery move. The Brazilian currency rallied to a 3-week high, and that provided the coffee market with carryover support. Below normal rainfall over major Brazilian Arabica growing areas provided additional strength to coffee prices. ICE exchange coffee stocks increased by 15,862 bags on Wednesday and finished November at 591,769 bags, which was their first monthly increase since April and their largest monthly increase since October 2012. Coffee waiting to be graded declined by over 17,000 bags, however, and that increases the chances for ICE exchange coffee stocks to not reach the 1 million bags level before they reach a near-term “top”. The turnaround in global risk sentiment should help to improve near-term restaurant and retail shop demand, and that can provide additional support to the market.

COTTON

The limit moves up to 5 cents today. March cotton closed up the 4 cent limit yesterday on optimism about Chinese demand, as two very large cities, Guangzhou and Chongqing, announced that they were easing Covid restrictions. Traders will be looking to today’s export sales report, especially after last week’s dismal report, which showed net cancellations of 104,105 bales of cotton for the week ending November 17. China canceled 110,000 bales. Traders seem very optimistic about China demand and there will be plenty of headwinds before China’s economy recovers.

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