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Uncertainties Abound in Coffee Market


Even though the area is far from key areas of supply or demand, cocoa prices have found significant pressure from Ukraine/Russian tensions as they have fallen more than 160 points (down 5.8%) below last Thursday’s 14-month high. However, a positive turnaround in global risk sentiment as well as key outside markets may provide the market with an early source of strength. Ongoing tensions between Ukraine and Russia continue to cast a shadow over European near-term demand prospects after US and European officials cast doubt over a Russian military pullback from the Ukraine border.


Coffee prices have been able to find their footing this week and have overcome a negative shift in global risk sentiment. While risk appetites may be improving, coffee should still have a fairly large net spec long position and remains vulnerable to additional long liquidation. The Brazilian currency extended its rally to a new 5-month high, which provided coffee with carryover support as a more than 11% gain in value over the past 6 weeks should ease pressure on Brazil’s farmers to market their near-term coffee supplies.


May cotton closed sharply lower on the session yesterday as the selling pushed the market down to the lowest level since January 28. The market is still operating under the negative technical influence of the February 4 key reversal. The dollar closed lower for the second day in a row, which should have been supportive to cotton. The stock market was down earlier, which may have put some pressure on cotton, but it recovered after the cotton market closed.


The market remains in a short-term downtrend with a large speculative net long position and this leaves long liquidation as a threat if support levels are violated. May sugar continues to hold its ground above a 6 1/2 month low in late January. While events after Wednesday’s close may be the catalyst for a downside breakout move, bullish supply developments could have sugar closing in on a low.

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