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Macquarie Agri-view
Diverging trends amongst the softs
Feature article
In this report we review recent developments in the soft commodity markets of
sugar, coffee, cocoa and cotton over the last few weeks and our latest views.
Taking aside the current risk-off commodity-wide sell-off – which is based
more on external macro factors – the fundamental outlook for these
commodities appears to be diverging: with coffee remaining bullish, sugar and
cocoa likely to consolidate for a few months and cotton peaking out.
Sugar appears to be consolidating in the low-20s c/lb range, ahead of the
new Brazilian crushing season, much higher than expected Thai supplies and
new OGL exports from India. Unless adverse weather or severe port
congestion is seen in Brazil, we think sugar prices have peaked as the market
gradually shifts into surplus with weakness expected out to 3Q. But we would
expect strong resistance at 20c/lb, a level below which additional sugar
production would be seriously impaired.
Coffee continues to head north, as it shoots pass the 300c/lb mark in NY,
despite the approaching Brazilian harvest and Colombian mitaca crop. Both
are due mid-May, with the former an “off” season and the latter suffering from
heavy rains. We remain bullish the Arabica market in view of historically low
stocks, lack of origin sales and resilient demand. In a market that has little
room for error, frost risks will likely outweigh upcoming selling pressure, and
speculators will continue adding exposure to futures.
Cocoa prices have held up fairly well at $3,200–3,300/t despite the ending of
the crisis in Ivory Coast and the lifting of sanctions. Delays in resuming normal
banking and market operations, coupled with lack of security in certain areas,
are supporting the market. But we expect prices to ease when exports (of
both piled-up old stocks and new mid-crop) restart in earnest in the weeks to
come. However, from 4Q the market will start to price in what is likely to be a
much tighter 2011/12 season on the assumption that African yields return to
historical averages.
Cotton futures for July delivery have fallen sharply to below 150c/lb on a
slowing import pace in Asia, weaker demand due to the high prices and
looming supplies from the southern hemisphere. US exports are easing
amidst increasing cancellations, as buyers await the new season’s cotton due
4Q. Although the global market balance will be less tight in 2011/12, the
outlook for the US’s new crop cotton is still risky given the drought in Texas,
which is hindering planting progress.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Macquarie Agri-view
Diverging trends amongst the softs
Feature article
In this report we review recent developments in the soft commodity markets of
sugar, coffee, cocoa and cotton over the last few weeks and our latest views.
Taking aside the current risk-off commodity-wide sell-off – which is based
more on external macro factors – the fundamental outlook for these
commodities appears to be diverging: with coffee remaining bullish, sugar and
cocoa likely to consolidate for a few months and cotton peaking out.
Sugar appears to be consolidating in the low-20s c/lb range, ahead of the
new Brazilian crushing season, much higher than expected Thai supplies and
new OGL exports from India. Unless adverse weather or severe port
congestion is seen in Brazil, we think sugar prices have peaked as the market
gradually shifts into surplus with weakness expected out to 3Q. But we would
expect strong resistance at 20c/lb, a level below which additional sugar
production would be seriously impaired.
Coffee continues to head north, as it shoots pass the 300c/lb mark in NY,
despite the approaching Brazilian harvest and Colombian mitaca crop. Both
are due mid-May, with the former an “off” season and the latter suffering from
heavy rains. We remain bullish the Arabica market in view of historically low
stocks, lack of origin sales and resilient demand. In a market that has little
room for error, frost risks will likely outweigh upcoming selling pressure, and
speculators will continue adding exposure to futures.
Cocoa prices have held up fairly well at $3,200–3,300/t despite the ending of
the crisis in Ivory Coast and the lifting of sanctions. Delays in resuming normal
banking and market operations, coupled with lack of security in certain areas,
are supporting the market. But we expect prices to ease when exports (of
both piled-up old stocks and new mid-crop) restart in earnest in the weeks to
come. However, from 4Q the market will start to price in what is likely to be a
much tighter 2011/12 season on the assumption that African yields return to
historical averages.
Cotton futures for July delivery have fallen sharply to below 150c/lb on a
slowing import pace in Asia, weaker demand due to the high prices and
looming supplies from the southern hemisphere. US exports are easing
amidst increasing cancellations, as buyers await the new season’s cotton due
4Q. Although the global market balance will be less tight in 2011/12, the
outlook for the US’s new crop cotton is still risky given the drought in Texas,
which is hindering planting progress.
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