Too Much Heat And Not Enough Rain
While demand concerns have weighed on prices, cocoa continues to have a bullish supply outlook for this season. With a shift in weather that could negatively impact next season’s West African production, cocoa has taken an abrupt turn back to the upside. There were reports of colder than normal weather during mornings and evenings over several West African growing areas, and that could lead to younger flowers drying out and not turning into fruits. West African cocoa trees are already dealing with a lack of fertilizers and pesticides which could further reduce next season’s output.
The supply outlook remains supportive due to South American weather issues, so a mild improvement in global risk sentiment can help coffee maintain upside momentum this week. A more than 2% rally in the Brazilian currency provided coffee with carryover support, as continued strength in their currency will ease pressure on Brazilian producers to market their near-term coffee supplies. In addition, ongoing production issues in Brazil and Colombia continue to underpin coffee prices.
December cotton closed moderately higher yesterday after choppy, two-sided trade. The Chinese city of Shenzhen told 100 major companies to set up “closed-loop” systems as it battles Covid-19, according to a document attributed to the local government, which raises more concerns about the way that nation is handling its outbreaks and the damage this could do to demand. Nine states showed declines, 2 were unchanged, and 3 states improved. The 1-5 day forecast calls for heavy to light rainfall in the Texas Panhandle but light to none in west Texas. Other cotton areas can expect moderate to heavy amounts.
While recent Brazilian supply developments have been supportive, it is a bearish shift in Brazil’s demand outlook that has put sugar prices in a downdraft. Unless the market can see some demand-side improvement, sugar is likely to remain on the defensive. Lukewarm Brazilian ethanol demand continues to pressure sugar prices late this month, which was underscored by reports that Brazil’s government will postpone compliance with renewable fuel targets.
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