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Cocoa Loses Upside Momentum


Cocoa’s 38-point trading range yesterday was the smallest daily range since early September, as the market appears to be losing upside momentum. March cocoa was lower yesterday and again overnight, and it traded to its lowest level since December 19. Even strong gains in the Euro and British Pound (both of which reached 4 1/2-month highs) could not keep cocoa from working lower yesterday. Growing areas are well into their dry season, with many regions having no rain in the forecast and daily high temperatures consistently above 95 degrees Fahrenheit. However, there are reports that conditions are more moderate in Nigeria and Cameroon. There have also been suggestions that the high cocoa prices have enabled farmers to buy fertilizer and pesticides after high input prices curtailed their usage in recent years.


Coffee prices have regained upside momentum and at yesterday’s high were 4.00 cents away from last week’s 14 1/2 month high. Major Arabica producing nations have avoided significant growing issues this season, but problems in Robusta-growing areas remain a source of strength for the market. The world’s three largest Robusta growers (Vietnam, Indonesia, and Brazil) have had drier than normal weather this year that has caused crop expectations to be lowered. A Reuters report mentioned that harvest in Vietnam was well advanced but that famers were still reluctant to sell their beans, hoping prices will rise further. This suggests the market may be on the cusp of some harvest pressure once sales start occur. ICE exchange coffee stocks fell 971 bags on Wednesday, and they remain on-track for their second lowest month-end total this century. The Brazilian real rallied yesterday to its highest level since July, which reduces pressure on growers to market their product for export.


March cotton closed higher on Wednesday after trading in a choppy, two-sided range, and it extended its gains overnight. The market found support from a sharply lower dollar, with the nearby Dollar Index trading to its lowest level since July yesterday and working lower again overnight. However, the market lacks much in the way of a fundamental driver with commercial trading slow at the end of the year. Traders are expecting cash trade to pick up next month ahead of the Lunar New Year in early February. The market could get a boost tomorrow if the weekly Export Sales report comes in strong.


March sugar has managed to close at least 45 ticks above its daily low in each session this week. This is after prices have fallen 29% from their peak in early November. The market is technically oversold and due for a correction. If it can climb above its recent consolidation, it could see a wave of short covering. Brazil’s Center-South production continues at a record pace, and this has been the key driver of the selloff, but the Unica supply report this week did show another decline in cane yields. The wet season has been slow to arrive, and this has allowed the harvest and crushing activity to extend later than normal, but the recent rainfall could signal an end to the harvest for the season. India is expected to extend its sugar export ban well into next year now that the government has allowed mills to produce some ethanol from cane juice. Thailand is expected to see a decline sugar production for the current marketing year, and it may see another decline in 2024/25 because of El Nino. The Brazilian real rallied yesterday to its highest level since July, which reduces pressure on crushers to market their sugar for export.


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