Macquarie Agri-view --New crop sugar supply outlook

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Macquarie Agri-view
New crop sugar supply outlook
Feature article
 After three years of deficit, culminating in this year’s problematic cane
problems in Brazil, sugar inventories have been drawn down sharply around
the globe. The world has been eagerly anticipating new supplies from the
northern hemisphere’s 2011/12 crops to tilt the global sugar market back into
a firm surplus from this quarter. However, how much of this surplus will be
available to the world market? We look at the balance between export
availability and import demand over the next few quarters.
Latest market update
 Coffee: Amidst global macro uncertainty, NY coffee had been struggling to
break out of the 230-240c/lb range. But ICE certified stocks are falling
alarmingly, as roasters still struggle to obtain high quality arabicas at origin.
With most funds net short on NY, a boost in macro sentiment or weather
issues risks triggering another short-covering rally, as we saw today, as
fundamentally speaking, the tightest period is still ahead of us. Despite the fall
in prices since May, roasters are not that well covered, and producers are still
holding back. La Niña related heavy rains in Central America and Colombia
during harvest period is raising concern over the upcoming 2011/12 arabica
crops, in terms of lost cherries, spread of fungus and transportation issues.
This will boost differentials in the short term as the much awaited new
supplies could be delayed. By contrast, the rains in Brazil have come in time
to allow coffee trees to bloom. However, some agronomists suggest that the
dry Jul-Sep period may have caused some damage to what should otherwise
be a bumper crop next July. We will be visiting coffee cooperatives in Brazil
next week to observe the coffee flowering.
 Cocoa: The market continues to suffer from the large stocks carried over from
the recently ended 2010/11 season and new selling pressure from Ghana
from the 2011/12 crop. NY futures have fallen to two-year lows, to $2,575/t
and are proving to be attractive buying levels for cocoa grinders – despite
indications that industry is covered through to mid-2012. European Q3 2011
grindings demand data came in above expectations at 14% year-on-year,
whereas North American demand was up 3.4%. Strong demand for powder,
led by emerging markets, is driving this surge. With major food companies
continuing to cite high input cost pressure and weak consumer confidence
going forward, the anticipated struggle to pass on cost increases indicates
that any further price dips represent strong hedging opportunities.
 Cotton: The sideways pattern in NY cotton prices continues, trading within a
narrow 99-102c/lb range, although forward indicators appear more bearish
than bullish. The US cotton harvest is about a third underway, but quality is
well below the historical average, at just 40% good/excellent. The market is
waiting for China to step up its state reserves buying programme and add
some life to the market, but so far it has reportedly purchased only around
50K bales (of 480lb) of new cotton for reserves, on top of the estimated
existing 1.325M bales. Prices will likely need to fall towards 95c/lb before new
buying takes place. However, any new sales may be captured by India, where
cotton arrivals are coming at a healthy pace, following the bumper harvest