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Demand Concerns Weigh on Coffee


Cocoa’s more than 700 point pullback since late February has been fueled in large part by expectations of a heavy decline in global demand, but the only major region to show any significant drop with their first quarter grindings was North America with a 5.1% year-over-year decline. The market experienced a wave of long liquidation in front of today’s release of second quarter European and North American grindings totals. The European second quarter Grindings came in at 314,108 tonnes, which was down 8.9% from last year’s 344,890 tonnes and compares to a Bloomberg survey projecting a year-over-year decline of 8%.


While coffee continues to be pressured by bearish supply/demand factors, the market has been able to hold its ground above the mid-June contract low. September coffee continued a coiling price pattern and reached a new 2-week low. Dry and warm weather will help to speed up Brazil’s harvest of the likely record high crop, and that weighed on coffee prices as it should lead to more near-term supply reaching global markets .


The market remains in a short-term downtrend and the selling yesterday pushed the market down to the lowest level since July 1. The corrective break has helped alleviate some of the overbought condition of the market. The trade is concerned that deteriorating US/China relations will hurt US cotton export prospects, and so far the extremely dry weather in Texas does not appear to be having as bad effect on the crop as had been expected. The weekly USDA Crop Progress report on Monday showed a slight improvement in Texas last week.


Sugar’s abrupt change in fortune was fueled in part by a positive shift in outside markets and global risk sentiment, while some fresh bullish supply news helped to support as well. After reaching a 6-week low, October sugar closed sharply higher yesterday. Carryover strength from energy markets provided sugar with a significant source of support as higher crude oil and gasoline prices should help to improve Brazilian ethanol demand prospects. The positive shift in global risk sentiment this week should help to improve the global sugar demand outlook as well.

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