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Very Dry Soil Conditions in West Texas


Cocoa prices have faced near-term demand issues since the start of 2020, even though this season’s global grindings are expected to reach a record high total. While key outside markets are likely to be a source of pressure, help with soothing the market’s demand concerns may come by the end of this week. A heavy selloff in the Eurocurrency was a notable source of pressure on the cocoa market yesterday with the European Cocoa Association releasing their first quarter European grindings total before Thursday’s opening.


Coffee’s March/April recovery move ran out of steam as near-term demand concerns are weighing on market sentiment. With bullish supply factors continuing to provide support, coffee should be able to hold its ground on corrective breaks. July coffee reached a new 6-week high early in the day, but closed lower.


May cotton closed sharply higher on the session yesterday and experienced follow-through buying from the hook reversal on Monday. Traders attributed the rally to mill fixations as well as concerns about the weather for the new crop. Crude oil also rallied sharply on yesterday to its highest level in almost a week, and this lent support to cotton as well. Western Kansas, Oklahoma, and especially Texas are under severe to exceptional drought, and the forecasts do not show much relief for the next 10 days.


A key reversal from an extreme overbought condition leaves the market vulnerable to a technical correction. Slow stochastic readings near 87 after a surge in open interest could spark some selling pressures if the key reversal is confirmed with selling below 20.07 for the July contract. It will take a quick move back over 20.37 in order to negate the reversal. While bearish supply news from India and Thailand has weighed on prices, there is a more supportive supply outlook in Brazil that should underpin prices.

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