Sugar Prices on the Defensive

SUGAR

After six positive weekly results in a row, sugar prices have started May squarely on the defensive. News that China firm COFCO delivered 900,000 tonnes of sugar was seen as a bearish force. As market focus shifts from Asian producers to Brazil, sugar will need to see a rebound in key outside markets to regain upside momentum. This season’s Brazil Center-South cane crushing and sugar production are running far ahead of last season’s pace, which could be a source of pressure on sugar prices as that supply should reach the global export market by the end of the second quarter. Center-South mills have kept sugar’s share of crushing above last season’s levels since late March. Brazil has ramped up their corn-based ethanol production over the past few years, and is likely to expand further due to their record corn crop during the 2022/23 season. As a result, Monday’s sharp selloff in crude oil and RBOB gasoline prices put significant carryover pressure on the sugar market.

COCOA

While cocoa prices continue to hold within their late April/May consolidation, they are having a tough time sustaining upside momentum during the second quarter. Unless there is a positive shift in global risk sentiment, cocoa will remain vulnerable to a sizable near-term pullback. Indications that cocoa will have a sizable global production deficit for a second season in a row have underpinned cocoa prices since the late March recovery move. However, a sharp selloff in the Euro and the British Pound yesterday weighed on cocoa prices later in the day as that will make it more difficult for European grinders to acquire near-term cocoa supplies. While many markets were closed for the May Day holiday, US equities had a lukewarm finish on Monday which in turn may dampen global risk sentiment over the next few days. The market will receive an updated Euro zone CPI reading early in today’s action, and a surprise uptick could weaken cocoa’s near-term demand outlook.

COFFEE

Coffee prices extended their late April pullback into the new trading month and have lost nearly 10% in value since reaching a 6-month high on April 18th. With a significant buildup of supply expected by mid-year, coffee could see further downside action before prices can find their footing. Brazil’s 2023/24 harvest is underway, with major growing areas forecast to have dry weather through the middle of next week. This has been a source of pressure on the coffee market during the past few weeks, as many forecast have Brazil’s 2023/24 Arabica crop having a sizable increase over their 2022/23 crop. A “risk off” mood in many commodity markets also weighed on coffee prices as that could dampen its near-term demand prospects.

COTTON

The market has closed higher for the third session in a row as demand remains firm. The dollar was moderately higher and crude oil and the stock market moderately lower, all of which is negative to cotton. The weekly crop progress report showed 15% of the US cotton crop had been planted as of April 30, up from 12% the previous week and steady with a year ago. Ample rain in the forecast for west Texas could slow plantings down, but it can also recharge their dry soils. The 1-5-day forecast has up to 1 inch of rain in some areas, and the 6-10 and 8-14-day forecasts have above normal chances of rainfall. With the region still under moderate to severe drought, any chance of improvement will be bearish, especially for the December contract.

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