An Excerpt from CRB'S Futures Market Service.
COTTON
Cotton prices slipped to a 1-month low and are consolidating above December’s 1-1/3 yr low. Bearish factors include (1) increased supplies with ICE-monitored cotton inventories as of Feb 1 rising to a 11/2 month high of 54,010 bales, (2) USDA’s Jan 12 hike in its 2012 U.S. ending stocks estimate to 3.70 mln bales, hike in its 2012 global ending stocks estimate to a 3-yr high of 58.35 mln bales, and cut in its 2012 U.S. export estimate to 11 mln bales, and (3) demand concerns after the World Bank cut its 2012 global growth forecast to +2.5% from June’s +3.6%. Bullish factors include (1) India’s cut in its 2011/12 cotton output estimate to 34.5 mln bales from a Nov estimate of 35.6 mln, (2) strong Chinese demand with 2011 China cotton imports up +18.6% y/y to 3.36 MMT and (3) USDA’s Jan 12 cut in its 2011 U.S. production estimate for a third month to 15.67 mln bales along with the cut to its 2012 global cotton production estimate to 122.84 mln bales.
Weekly US cotton exports (week ended Jan 26) were 366 thousand running bales; cumulative 2011/12 (Aug-July) exports down –33% y/y.
Fundamental Outlook—Bearish Correction—Cotton prices are in correction mode. The USDA cut its global usage estimate and raised its U.S. and global ending stocks estimates, but India’s cotton output fell. Oversupply concerns continue with the 2011-12 global stocks/use ratio at a 3-yr high of 53.1%.
SUGAR
Sugar prices retreated towards its Dec 8-month low. Bearish factors include (1) increased supplies after Russian sugar output rose to a record 5 MMT and the EU raised its 2011-12 EU sugar production estimate to 19.16 MMT from a Nov estimate of 18.67 MMT, (2) speculation India may allow 1 MMT of sugar exports on top of the 1 MMT of exports it authorized in Nov, and (3) prospects for a 300,000 MT sugar surplus for Pakistan in 2011/12, which may prompt it to export sugar for the first time in 4 yrs. Bullish factors include (1) tight supplies after Somar Meteorologia said Brazil’s sugar-cane harvest may be delayed until May because of rain, (2) the action by Australia, the third-biggest sugar exporter, to cut its sugar production estimate for the year ending 6/30/12 to 3.9 MMT from Sep’s 4.2 MMT forecast, and (3) 2011 China sugar imports of 2.92 MMT, up +65% y/y.
Fundamental Outlook—Bear-Market Consolidation—Sugar prices are consolidating above their 8-month low. Prices hit that low in December after the USDA raised global ending stocks and global supplies increased. ISO is forecasting small global sugar surpluses for 2010/11 (1 MMT) and 2011/12 (4.2 MMT) after 2-yrs of deficits. However, ISO is forecasting a 1.7% rise in global sugar demand this year, cutting the inventory-to-consumption ratio to a 20-yr low of 32%.
COFFEE
Coffee prices weakened further and are just above December’s 13-3/4 month low. Bearish factors include (1) ICO data showing that 20111 global coffee exports rose +7.4% y/y to a record 104 mln bags and a hike in its 2011-12 global coffee production estimate to 132.4 mln bags from an Oct estimate of 128.6 mln, and (2) Brazil’s forecast for a 2011/12 crop of 43.15 mln bags, the largest off-cycle crop in 11 yrs. Bullish factors include (1) 2011 coffee output in Columbia, the second-largest supplier of arabica beans, falling to 7.81 mln bags, a 35-yr low, (2) CNC’s prediction that Brazil’s coffee inventories will fall -26% this year to below 2.58 mln bags, a 10-yr low, and (3) USDA’s Dec 9 cut in its 2011/12 global coffee production estimate to 133.8 mln bags and the cut to its global ending stocks estimate to an 11-yr low of 24 mln bags.
Fundamental Outlook—Bearish—Coffee prices remain weak after the ICO raised its global coffee output estimates. Coffee production in 2010/11 rose +7.6% y/y to a record 136.4 mln bags (USDA), but production should fall -1.9% y/y 133.8 mln bags in 2011/12 Brazil’s 2011/12 (Jul-Jun) production will fall -9.7% y/y to 49.2 mln bags on the off-year of the biennial cycle (USDA).
COCOA
Cocoa prices dropped to a 3-week low. Bearish factors include (1) hedging pressures on Ivory Coast plans to sell 70% of its 2012/13 cocoa crop as part of industry reforms, (2) easier Q4 European cocoa grindings of +1.8% y/y, the slowest pace in a year, (3) Ivory Coast’s prediction that its 2011/12 cocoa output may rise 10% to a record 1.65 MMT, and (4) ICO’s hike in its global cocoa ending stocks estimate for 2010/11 to a record high of 1.93 MMT, up +18.5% y/y. Bullish factors include (1) speculation a stronger-than-normal seasonal harmattan wind that curbs rains and brings dry air from the Sahara desert may reduce the Ivory Coast's cocoa crop, (2) ICO’s prediction that 2011/12 global cocoa output will drop -10% y/y to 3.87 MMT, and (3) ICO’s hike in its global grindings estimate for 2010/11 to a record 3.83 MMT.
Fundamental Outlook—Short-Term Neutral—Cocoa prices fell back from recent gains on Ivory Coast hedging pressures. Prices sank to a 3-yr low in Dec on record output from West Africa and the hike in the ICO’s global production and surplus estimates. Long-term global demand is strong (+3.1% in 2010/11), but ICO forecasts higher output will lead to a +18.5% gain in ending stocks to a record 1.93 MMT. The stocks/consumption ratio is forecast at 47.8% vs yr-earlier 44.2%.
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