Macquarie Agri-view --US acreage report is bullish new crop cotton

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Macquarie Agri-view
US acreage report is bullish new crop
cotton
Feature article
 New crop cotton futures have resumed their upward trend on the back of last
week’s bullish USDA acreage report. Prior to the report, trade estimates for
US cotton acres averaged 13.5m vs our estimate of 13m. The USDA
surprised the market with a number of just 12.57m acres, much lower than
expected and prompting the new crop (Dec 11) cotton futures to rally. Given
that there are already concerns about yields due to dry planting conditions,
this acreage number will provide little comfort that US cotton supplies will
expand sufficiently to meet still-robust global mill demand. Prices should
accordingly be subject to upside price risks in the short term.

Latest market update
 Cocoa: Futures have fallen sharply to $2,975/t in NY, in anticipation of a
speedy end to the political impasse currently afflicting Ivory Coast. Strong
advances by UN-backed Ouattara and a marked escalation in bloody violence
in recent days has finally forced Gbabgo to surrender. Expectations now are
for the EU export ban to be lifted promptly in order to allow the 500kt or so of
Ivorian cocoa stocks sitting in warehouses to be shipped off to destination.
But this may take time, and a period of continued unrest and instability will
likely prevent a smooth transition to immediate normality in the short term.
That said, once the crop leaves the country – and allowing for a prompt start
to the midcrop harvesting (which, thanks to ideal weather, is estimated to be
large at 370kt) – we think the market could easily be flooded with excess
cocoa, given that flows from other areas such as Ghana are already up
strongly. While much of this has already been priced into the market, we see
little reason to remain bullish on prices from here on.
 Coffee: Prices have come under pressure following a combination of the
seasonal easing of roaster demand, the beginnings of new crop hedging out
of Brazil, bearish technical momentum and reduced speculative interest.
However, the fundamental outlook has not changed much. Arabica supplies
are still expected to fall short of global demand after the Brazilian off-cycle
harvest is over. And with coffee demand still resilient and limited physical
stocks to take us through to the next 2012/13 crop on cycle, we think any
period of weakness in coffee prices should be viewed as an opportunity for
the demand side to add coverage. The recent rally in front-month Robusta
futures on LIFFE has been met with a large supply response and a rise in
certification volumes, which has caused Robusta prices to sell off.
 Sugar: NY futures are also trading sideways, with the May 11 contract at
27.5¢/lb. Price support from low inventories is tempered by higher Thai
availability and anticipation of the start of the CS Brazilian crushing season.
UNICA’s first estimates for the 2011/12 crop indicate 568.5mt of cane to be
crushed, to produce 534.58mt of sugar with an average ATR of 140.8kg/m.
Despite the cane crop forecast being 2.1% higher YoY, sugar production is up
just 0.3%. This is because UNICA is pencilling in a sugar/ethanol mill capacity
split of 45.3% (against last season’s 44.7%), which, in turn, reflects the record
high ethanol prices that Brazil is seeing right now.