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Weak Global Cotton Demand

COTTON

The lowest close since November 1 for May cotton keeps the short term trend down and the close below 77.62 is a bearish technical development as well. This occurred in spite of a more bullish tilt to outside market forces. Weak demand from China and the outlook for sluggish global demand ahead are factors which add to the negative tone. For the month of February, China imported 90,000 tons of cotton, down 53.8% from a year ago. The dollar fell to its lowest level since February 15, and the stock market was higher. Both of these moves should have been supportive to cotton, but they did not seem to help. Crude oil fell to its lowest level since December 2021, which was negative to cotton. It did manage to reverse and closing higher on the session, but this happened too late in the day to support cotton. The market may have also been pulled down by corn, soybeans, and wheat, which all closed lower on reports that the deal to allow Ukrainian exports through the Black Sea was extended.

cotton pod on blue sky

COCOA

Cocoa prices have risen more than 180 points (up 8.8%) as they have benefited from a rebound in global risk sentiment and in key outside markets. With further evidence of tight near-term West African supplies, cocoa can extend this recovery move up to a new 2-year high. A rebound in global risk sentiment provided a significant boost to cocoa prices as that helped to soothe near-term demand concerns for discretionary items such as chocolates. In addition, rallies in the Eurocurrency and British Pound provided carryover support to the cocoa market as they will make it easier for European grinders to acquire near-term supplies. The latest weekly Ivory Coast port arrivals total came in below the comparable period last year, and that put their full season arrivals total further behind last season’s pace. There was heavier than normal rainfall across many West African growing areas last week which should benefit their mid-crop cocoa production. Cocoa’s 3-session updraft could leave the market vulnerable to profit-taking and additional long liquidation if global risk sentiment turn negative again.

COFFEE

Coffee prices have maintained their coiling pattern over several weeks but are now starting to receive bullish supply developments. If improving global risk sentiment can help to soothe near-term demand concerns, coffee can climb further away from last Wednesday’s 1 1/2 month low. A rebound in the Brazilian currency provided the coffee market with carryover support, as continued strength in the Real will ease pressure on Brazil’s farmers to market their coffee to foreign customers. There was below average rainfall over Brazil’s main Arabica growing regions last week, which adds to the drier than normal conditions seen during the recently-ended La Nina weather event. On the other hand, drier conditions may allow Brazilian farmers to apply fresh fertilizer and pesticides to their coffee trees which should benefit their upcoming 2023/24 Arabica crop.

SUGAR

Sugar prices have been unable to sustain upside momentum since reaching a 6-year high in early March. While the market may find fresh support from key outside markets, sugar needs to find more bullish supply developments to avoid further downside price action. An early pullback in energy prices put carryover pressure on the sugar market as that may weaken near-term ethanol demand. The end of the recent La Nina weather event should lead to more consistent rainfall over Brazil’s Center-South cane growing regions. As a result, that should benefit their upcoming 2023/24 cane crop and lead to additional sugar production during the second and third quarters.

 

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