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Downside Breakout in Cocoa

COCOA

The cocoa market has started this week by breaking out below its late December/January consolidation zone. Global markets have made a sluggish start to the year, and that has weakened cocoa’s near-term demand outlook and left it vulnerable to further downside price action. Stronger than expected December US jobs data on Friday increased the prospect that US rates will stay at elevated levels through the first half of this year. This could weaken domestic demand for discretionary items such as chocolate. In addition, a sluggish start to 2024 for European equity markets and the Euro also weighed on cocoa prices as that could weaken demand in Europe, a region that accounts for the largest share of global grindings while at the same time having no domestic source for cocoa beans.

cocoa pods opened

COFFEE

After a mildly positive start to the year, coffee prices are on track to have a 4-day losing streak. Until market sentiment starts to improve, the coffee market may remain under pressure early this week. The prospect of increased production from Brazil, Colombia and Honduras continues to pressure coffee prices. The USDA projected 2023/24 global Arabica production at 97.315 million bags, which compares to 87.886 million bags during the 2022/23 season and would be the fourth highest total on record. Brazil’s government said that their December green coffee exports came in at 243,560 tonnes (4.059 million bags), and that compares to 182,101 tonnes (3.035 million bags) last year. Colombia’s December coffee production came in at 1.22 million bags which compares to 981,000 bags in December 2022. As a result, Colombia’s 2023 coffee production came in at 11.3 million bags which was 2% above last year and was their first annual production increase since 2019.

COTTON

Cotton prices have been unable to close above their 50-day moving average since mid-October, but the market has stayed clear of the November and December lows early this year. If a rebound in global risk sentiment can improve its demand outlook, cotton prices can regain and sustain upside momentum early this week. Rain in the forecast for southeastern US growing areas has weighed on cotton prices recently as that should improve the prospects for the region’s 2024/25 cotton production. The latest USDA Export Sales report showed that for the week ending December 28, net cotton sales came in at 131,063 bales for the current marketing year and none for the next marketing year for a total of 131,063 bales. This was a 65% decline from the 372,497 bales sold in the December 21st report, but the market was expecting a significant weekly decline due to slow end-of-year “holiday” business.

SUGAR

Sugar has spent all of this year’s trading so far inside of the December 29th daily range as the market continues to see coiling price action. After overcoming bearish supply news late last week, sugar is likely to maintain upside momentum early this week. Brazilian December sugar exports came in at 3.853 million tonnes which compares to 2.203 million in December 2022. Although some of their December total was for shipments that were delayed by Brazil’s recent port congestion, the sharp increase from last year is due in larger part to Center-South sugar production being on a record pace this season. In contrast, Thailand’s Sugar and Cane Board forecast their 2023/24 sugar production at 8 to 8.5 million tonnes which would be a 25% decline from last season. This should also result in Thai sugar exports having a sharp decline from last season which helped the market recover from last Friday’s early lows. India is likely to extend their sugar export ban through the rest of this season, and that has underpinned sugar prices early this week.

 

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