Weak Demand Tone From China
With the market focusing on demand this week, positive news over the weekend helped cocoa prices to regain upside momentum. Although it is nearly 100 points above its early July low, cocoa will need to see positive quarterly grindings results later this week to see a sizable extension to this recovery move. A group of major chocolate manufacturers entered into an agreement with Ivory Coast and Ghana to ensure fair cocoa prices for their nation’s farmers, which includes backing the Living Income Differential (LID) of $400 per tonne on cocoa contracts from both nations which has been in place since 2019.
Coffee prices have been unable to find their footing this month as they have fallen to the lower portion of the March/July consolidation zone. In spite of ongoing production issues in South America and Central America as well as tightening near-term supplies in Europe and North America, coffee has been unable to shake off concern over near-term demand prospects. A more than 1.5% decline in the Brazilian currency weighed on coffee prices as continued weakness in that currency will make Brazil’s producers more aggressive with marketing their near-term supply to foreign customers.
The cotton trade is concerned about demand, from a stronger dollar making US exports less competitive and from concerns about Chinese demand as they battle Covid. Stock markets in China and Hong Kong fell sharply on Monday as a rise in cases weighed on sentiment, and this pressured cotton. The weekly Crop Progress report showed 39% of the US cotton crop was rated good/excellent as of July 10, up from 36% the previous week but down from 56% last year and below the 10-year average of 51%.
If global risk sentiment and key outside markets can regain their strength, sugar prices should climb up towards a retest of their May/June highs. October sugar continued to hold its ground at the high end of last Friday’s trading range. A sharp pullback in the Brazilian currency weighed on sugar prices early yesterday, as that may encourage Brazil’s Center-South mills to produce more sugar for export.