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Another Steep Decline in Cotton

COTTON

July cotton broke below a three-day consolidation yesterday for the second steep decline in five sessions. At the low yesterday, the market had lost 6.61 from its high on April 19 and had reached its lowest level since March 27. Outside market forces were negative yesterday; the dollar was higher, and crude oil and the stock market were lower. Traders blamed the broad commodity selloff and anxiety regarding the global economy for the weakness in cotton. Traders could also be viewing a wetter forecast for west Texas as bearish as well. That area is still facing drought, but conditions have improved since last year.

COCOA

With the market starting this week close to 6 1/2-year highs and with a sizable net spec long position, cocoa prices were vulnerable to a near-term pullback. While the longer-term supply/demand outlook remains bullish, cocoa may be in danger of finishing April with a negative monthly key reversal. A negative shift in global risk sentiment was a major source of pressure on the cocoa market yesterday as that should weaken the near-term demand outlook for many discretionary items such as chocolates. In addition, sharp selloffs in the Eurocurrency and British Pound put additional carryover pressure on cocoa prices as extended weakness in those currencies could make it more difficult for European grinders to acquire near-term cocoa supplies.

COFFEE

After a positive start to the week, coffee prices have fallen back on the defensive and will start today’s trading 16.50 cents below last Tuesday’s 6-month high. If global risk sentiment remains subdued, coffee prices are likely to have a downbeat finish to the month. A “risk off” mood across many global markets put pressure on coffee prices as that should weaken out of home consumption prospects. In addition, a pullback in the Brazilian currency put additional pressure on the coffee market as that may encourage Brazilian farmers to more aggressively market their coffee supply.

SUGAR

The market was able to regain strong upside momentum and climb further into new high ground. There will be critical supply data from Brazil before month-end, however, so the sugar market is still vulnerable to a near-term pullback. July sugar was able to defy negative global risk sentiment and slumping energy prices and reached a new 11-year high. There were just above 29,000 contracts of open interest in the expiring May ICE sugar contract at the start of the day, which fueled significant short-covering yesterday as this would project a smaller than average delivery for a May sugar contract.

 

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