An Excerpt from CRB'S Futures Market Service.
COTTON
Cotton prices are trading well below $1 a pound and just above their 1-1/3 yr low. Bearish factors include (1) weakened Chinese demand after Jan China cotton imports fell -16.6% y/y, (2) USDA’s Feb 9 hike in its 2012 U.S. ending stocks estimate to 3.80 mln bales along with a hike in its 2012 global production estimate to 123.34 mln bales and the hike in its 2012 global ending stocks estimate to a 3-yr high of 60.77 mln bales, and (3) global demand concerns after the World Bank cut its 2012 global growth forecast to +2.5% from June’s +3.6%. Bullish factors include (1) the action by Australia, the third-biggest cotton exporter, to cut its 2011/12 cotton crop to 1.080 MMT from a Dec estimate of 1.144 MMT because of floods, (2) India’s cut in its 2011/12 cotton output estimate to 34.5 mln bales from a Nov estimate of 35.6 mln, (3) overall strong Chinese demand with 2011 China cotton imports up +18.6% y/y to 3.36 MMT.
Weekly US cotton exports (week ended Feb 9) were 293 thousand running bales; cumulative 2011/12 (Aug-July) exports down -33% y/y.
Fundamental Outlook—Bearish—Cotton prices slumped after the USDA raised its global production and U.S. and global ending stock estimates. Floods in Australia have curtailed the country’s output and may put a cap on further declines. Oversupply concerns continue with the 2011-12 global stocks/use ratio at a 3-yr high of 55.4%.
SUGAR
Sugar prices are holding modestly below last month’s 3-month high. Bullish factors include (1) reduced supplies after sugar output in Brazil’s Center South fell to 31.2 MMT in the season through Feb 1, down -6.8% y/y, (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. Bearish factors include (1) the action by India to approve 1 MMT of sugar exports on top of the 1 MMT of exports it authorized in Nov, (2) 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, 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.
Fundamental Outlook—Bear-Market Consolidation—Sugar prices are consolidating well 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 plummeted to a fresh 15-month low. Bearish factors include (1) adequate supplies with global coffee stockpiles monitored by ICE at 1.569 mln bags as of Feb 16, a 6-3/4 month high, (2) ICO data showing 2011 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 130.9 mln bags from an Oct estimate of 128.6 mln, and (3) 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) ICO’s cut in its 2011/12 global coffee production estimate to 130.9 mln bags from a Jan estimate of 132.4 mln, (2) 2011 coffee output in Columbia, the second-largest supplier of Arabica beans, at 7.81 mln bags, a 35-yr low, and (3)USDA’s cut its global ending stocks estimate to an 11-yr low of 24 mln bags.
Fundamental Outlook—Bearish—Coffee prices plunged as an increase in global supplies prompted fund selling. 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 rebounded up to a 3-week high. Bullish factors include (1) the affirmation from raw-materials trader Olam International that global cocoa processing has been “stronger than expected,” which will draw down global stockpiles, (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 2010/11 global grindings estimate to a record 3.83 MMT. Bearish factors include (1) increased supplies as Dec Ivory Coast cocoa exports rose +53% y/y to 125,816 MT, (2) 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.
Fundamental Outlook—Short-Term Bullish—Cocoa prices rose on speculation of increased demand. Prices had fallen 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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