Volatility for Cocoa Prices

COCOA

Cocoa prices have seen volatile action since reaching a 5-month high last Friday. Near-term demand prospects are likely to remain an area of concern, but this season’s early bullish supply tone should help to underpin cocoa prices. A larger than expected downtick in the US PPI and core PPI provided some evidence that high inflation levels are starting to recede. If this trend continues, it can help to shore up cocoa’s near-term demand outlook as consumer may be more willing to purchase discretionary items such as chocolates. Late in the day, reports that a Russian missile killed 2 people in Poland dampened global risk sentiment and triggered a sharp selloff in the Eurocurrency, both of which helped to take cocoa prices well below their midsession highs.

COFFEE

Coffee prices have been unable to put any brakes on a longer-term selloff that has reduced its value by one-quarter since the end of September. March coffee fell sharply to reach a new 18-month low. ICE exchange coffee stocks were unchanged on Tuesday which broke a 7-session streak of daily increase, but coffee that is waiting to be graded at the port of Antwerp has now risen to over 597,000 bags. While a portion of those bags will not be approved for inclusion to ICE exchange warehouse stocks, this continues to be a major source of pressure on coffee prices as it is likely that stocks levels will more than double in size before this wave of inflows slows down. Above average rainfall during the past month over Brazil’s major Arabica growing regions has increased the prospects for their upcoming 2023/24 crop, which also weighed on prices early in the day. In contrast, Colombia’s annualized production pace has fallen below the 12 million bags level and reached its lowest reading since July 2014 in October. US Green coffee stocks fell 58,321 bags at the end of October to 6.32 million bags.

COTTON

December cotton closed higher yesterday having traded back to the top of the trading range during the past eight sessions. The dollar fell sharply again after the US PPI number came in below expectations. This came after last week’s CPI number also came in soft. This boosts optimism that the Fed is succeeding in its fight against inflation and perhaps opens the door for less aggressive action on their part. Traders are also hopeful that China will continue to be an active buyer of US cotton. The lower dollar helps, but so does the apparent willingness for the government to ease back on covid restrictions.

SUGAR

Sugar prices shook off early pressure and rallied to a new 5 1/2 month high yesterday with a sixth positive daily result in a row. Increasing concern that India’s mills may default on sales contracts has led to a flare-up of supply anxiety in the sugar market. In addition, a rebound in crude oil and RBOB gasoline prices provided sugar with carryover support. Most mills in Brazil are planning to end sugarcane processing in November with only a few into December. Global sugar production is set to rise by 5.5% to a record 182.1 million tons in 2022-2023, boosted by Brazil, according to the International Sugar Organization’s latest quarterly report. The sugar agency maintained its neutral-to-bearish outlook for prices, citing export surpluses and the global fight against inflation. Stockpiles are set to climb by 2.9 million tons to 99.7 million tons.

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