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Softs Mostly Higher Led by Cocoa


Cocoa turned up yesterday with little carryover support from key outside markets. If global risk sentiment can turn positive, cocoa should be able to extend this recovery move. A negative tone to European stock markets and the Eurocurrency was a source of early pressure to cocoa prices as they strengthen the case that there will be lukewarm near-term demand from a region that accounts for one-third of all global cocoa processing.


A move above 98.95 for September coffee today will break the downtrend channel off of the April and May highs. In addition, a close above 97.00 will represent a weekly reversal. If global risk sentiment can regain a positive tone, coffee could find some support. A more than 2% selloff in the Brazilian currency as it fell to a new 2 1/2 week low was a notable source of pressure on coffee prices as it gives additional incentive to Brazil’s farmers to market their near-term supply to foreign customers.


The market remains in a steady uptrend, but there seems to be plenty of issues which could hurt demand. The market already faces burdensome supply if weather is anywhere close to normal. The 6-10 and 8-14 day forecasts are calling for normal to above normal precipitation across most of the cotton belt, with the exception of the far southwestern corner of Texas. July cotton closed slightly lower on Thursday after trading to its highest level since June 8th earlier in the session.


Sugar prices have held ground in the June consolidation zone, but are showing signs of being top-heavy at these current price levels. Unless there is a positive turnaround in global risk sentiment, sugar remains vulnerable to additional long liquidation. The Brazilian currency resumed its selloff as it lost more than 2% in value and reached a 2 1/2 month low, and that weighed on sugar prices as it encourages more sugar production from Center-South mills at the expense of ethanol production.

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