Technical Action Takes Bullish Tilt
Although the market has seen near-term rallies over the past 5 months, cocoa prices have taken out the high of the previous recovery move for the first time since front-month futures made contract highs in mid-February. While lukewarm global risk sentiment and near-term demand prospects remain areas of concern, cocoa’s bullish supply outlook has lifted the market well clear of its mid-July lows. Increasing concern over a lack of fertilizers and pesticides for major West African producers has diminished the outlook for the region’s upcoming 2022/23 main crop output.
Coffee prices continue to benefit from bullish supply developments. Although out-of-home consumption prospects may remain an area of concern during the third quarter, coffee should be able to sustain upside momentum. Restaurant and retail shop consumption has been diminished by high inflation, so the coffee market may have trouble gaining further ground until the FOMC meeting results are out of the way.
December cotton closed sharply higher yesterday after trading to its highest level since last Wednesday. This was despite a sharply higher dollar, a weaker stock market, and lower crude oil prices. This came in the wake of Monday afternoon’s Crop Progress report, which showed US cotton crop conditions worsening last week, with 34% of the US crop rated good/excellent versus 38% the previous week, 61% a year ago, and a 10-year average 52%. Texas, which represents more than 50% of US growing areas, saw conditions fall to 17% G/E, from 21% the previous week, 53% a year ago, and the 10-year average of 40%.
Sugar was barely able to break a 5-session losing streak that saw prices lose 10% of their value during that timeframe. Until the market receives fresh bullish supply news from Brazil, sugar remains vulnerable to further downside price action. October sugar reached a new 11-month low yesterday. A midsession selloff in crude oil and RBOB gasoline prices put carryover pressure on the sugar market as that may weaken ethanol demand in Brazil and India.
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