Sugar Vulnerable to Swift Pullback

SUGAR

Sugar prices have benefited from an upsurge in key outside markets early in October, but the market continues to deal with an overall bearish supply outlook. As a result, sugar prices may have risen “too far, too fast” and are vulnerable to a swift pullback this week. For the week, March sugar finished with a gain of 100 ticks (up 5.7%) which was a second positive weekly result in a row. A sizable rally in crude oil prices provided the sugar market with carryover support as that should give a boost to ethanol demand in both Brazil and India. Brazil’s Center-South mills have shifted some of their crushing from ethanol production to sugar production in recent months, however, and may avoid further large adjustments until Brazil’s Presidential run-off election is completed later this month.

COCOA

Cocoa prices have fully recovered from their late September downdraft and held up fairly well in the face of a “risk off” mood across global markets. While recent bullish supply developments should help to underpin cocoa prices, an uncertain fourth quarter demand outlook may limit further upside. For the week, December cocoa finished with a gain of 42 points (up 1.8%) which was a second positive weekly result in a row. Early indications that this season’s West African production will see little if any improvement from last season continues to fuel cocoa’s recovery move. Both Ivory Coast and Ghana increased their minimum purchase prices this season, which was also seen as a positive development for cocoa prices. Starting today, there is daily rainfall in the forecast for West African growing areas. While that may cause delays with harvesting, drying and transporting cocoa beans, it will also benefit the region’s late main crop and early mid-crop production.

COTTON

December cotton closed higher on Friday after trading to its lowest level since September 2021 earlier in the session. The market attempted to follow through on its declines from Wednesday and Thursday, but the selling appeared to dry up. This was the fourth straight weekly decline, as traders continued to fret about demand. The dollar recovered after plunging earlier in the session, which contributed to concerns about US export prospects. The rally in crude oil provides some support. For the USDA monthly supply/demand report on Wednesday, the average trade expectation for US 2022/23 production is 13.34 million bales, with a range of expectations of 12.80 to 13.65 million and compared to 13.83 million in the September report. US exports are expected to come in around 12.48 million (range 12.20-12.60 million), down from 12.60 million in September.

COFFEE

Coffee has seen whipsaw price action over the past few weeks as near-term demand concerns have kept the market from sustaining upside momentum. Coffee continues to receive bullish supply news, however, and that may fuel an upside move if and when global risk sentiment can improve. For the week, December coffee finished with a loss of 3.45 cents (down 1.5%). There were reports that coffee trees in Brazil’s top-producing state of Minas Gerais were damaged by heavy rainfall and hail, which helped the coffee market regain strength Friday. A September update showed that Colombia’s annualized production pace has reached an 8-year low, which provided additional support to the coffee market. A mild rebound in the Brazilian currency was another source of strength.