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Tight Supply Expectations Supports Cocoa


Cocoa prices were pressured by sluggish global risk sentiment yesterday. Bullish near-term supply developments and a positive longer-term demand outlook and underpinning prices, however, so cocoa should remain well supported on a near-term pullback. A negative shift in tone for European and US equity markets weighed on the cocoa market as that may weaken near-term demand in both regions.


With the market underpinned by bullish supply developments, signs of improving demand have fueled coffee’s upside move. July coffee reached a 6-week high before finishing Monday with a sizable gain. Expectations that Brazil and Colombia will continue to have their upcoming production negatively impacted by the La Nina weather event have underpinned coffee prices this month.


An outside reversal day up in May cotton is a bullish short term technical indicator. Cotton seemed to draw support from other agricultural markets that were sharply higher. Reports that Russia is gearing up to intensify its attack on eastern Ukraine supported wheat and corn. Ongoing drought in west Texas, Oklahoma and Kansas raise concerns about this year’s cotton crop.


Sugar prices have been able to hold their ground near Friday’s 5-month highs in spite of bearish near-term supply news and negative global risk sentiment. With a bullish shift in Brazil’s near-term production outlook, sugar is in position to move higher. A sharp selloff in crude oil and RBOB gasoline prices put carryover pressure on the sugar market, as that could dampen near-term ethanol demand if energy prices remain weak.

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