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Cocoa a Very Demand Sensitive Market


Cocoa prices continued to be pressured by near-term demand concerns as the market has fallen more than 300 points (down 10.7%) over the past 11 sessions. With fresh evidence of bullish longer-term supply/demand prospects, however, cocoa should be a major beneficiary of a positive turnaround in global risk sentiment “if” war issues subsided. Global risk sentiment has been eroded by the ongoing Ukraine/Russian conflict, which was a major source of pressure on the cocoa market as that weakened near-term demand prospects, particularly in Europe. In addition, a sizable pullback in the Eurocurrency put additional carryover pressure on cocoa prices.


A sizable net spec long position continues to weigh heavily on coffee prices as it has left the market vulnerable to additional long liquidation from a negative shift in global risk sentiment. Bullish supply developments should have coffee prices closing in on a near-term low. Global risk sentiment remains subdued as the Ukraine/Russia conflict continues, and that has weighed on coffee prices as it may result in lower out-of-home consumption.


The short-term fundamentals appear bearish but the inflationary impact is hard to pinpoint. May cotton closed higher on Monday but spent the day inside Friday’s range. The market is still well off its spike high last week. The action is still quite volatile compared to what was occurring prior to Russia’s invasion of Ukraine. Outside markets, the US dollar, crude oil, and equities, are volatile as well, and this only contributes to the cotton market’s volatility. There were some concerns for the potential spread of pink worm in cotton in India.


The surge in energy overnight may be a key force to support sugar ahead. Although the market has been pressured by bearish near-term supply news, sugar may be able to move higher in March. Energy prices were able to regain their strength as the Ukraine/Russian conflict continued into this week, and that provided carryover support to the sugar market. Brazilian domestic ethanol demand has started to improve over the past few weeks, and demand should strengthen further if crude oil and RBOB gasoline prices remain close to multi-year highs.

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