An Excerpt from CRB'S Futures Market Service.
COTTON
Cotton prices slipped to a 1-1/2 month low, just above July’s 11-month nearest-futures low. Bearish factors include (1) China’s CA estimate that China’s cotton output this year will rise to 7.38 MMT, up +10.9% y/y, (2) the fall in Aug China cotton imports for a seventh month on an annual basis by 14% y/y to 207,028 MT, (3) USDA’s unexpected hike Sep 12 in its U.S. cotton production estimate to 16.556 mln bales from 16.554 mln in Aug, and (4) USDA’s Sep 12 hike in its U.S. carry-over estimate to 3.4 mln bales and the hike in its global cotton production estimate to 122.96 mln bales. Bullish factors include (1) the worst drought in Texas in over 100 years which has led to the US cotton crop as of Sep 25 at only 29% in good-to-excellent condition, -26 pts y/y, (2) USDA’s Sep 12 cut in its 2011/12 global carry-over estimate to 51.91 min bales, and (3) flooding in Pakistan, the world's fourth-biggest cotton grower, that damaged 67% of its cotton crop.
Weekly US cotton exports (week ended Sep 22) were 79.6 thousand running bales; cumulative 2011/12 (Aug-July) exports down -46% y/y.
Fundamental Outlook—Medium-Term Bearish —Cotton prices are attempting to hold above their recent 11-month low on increased global output estimates and slack Chinese demand. Supply concerns have eased with USDA revisions and the 2011-12 global stocks/use ratio at 45.7%, the highest in three years.
SUGAR
Sugar prices are attempting to hold above their recent 3-1/2 month low. Bearish factors include (1) India’s SMA estimate for 2011/12 India sugar output to rise to a 4-yr high of 26 MMT after plantings increased +3% y/y to 12.6 million acres, (2) ISO’s hike in its global sugar surplus estimate for 2011-12 to 4.2 MMT from 4 MMT along with its prediction for record global sugar production of 172.4 MMT, and (3) the prediction from F.O. Licht that European sugar output for the season starting Oct 1 will be 30 MMT, the highest in 6 years. Bullish factors include (1) the cut by Brazil Ag Ministry to its Brazil sugar production estimate for this year to 37.1 MMT from a May forecast of 40.9 MMT after freezing weather cut yields and (2) reduced output in Australia, the third largest sugar exporter, after floods and cyclones may cut its sugar output to a 9-yr low of 3.58 MMT.
Fundamental Outlook—Medium Term Bearish —Sugar prices are under pressure from general commodity weakness and questions about global demand, although output is lower in Brazil and Australia. 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 an 8-1/4 month low, a downside correction from May’s 14-yr high. Bearish factors include (1) dollar strength that fueled long liquidation, (2) Brazil’s forecast for a 2011/12 crop of 43.15 mln bags, the largest off-cycle crop in 11 yrs, and (3) ICO data showing Oct-Jul global coffee exports were up +14% y/y at 88.9 mln bags. Bullish factors include (1) the -16% y/y fall in ICE monitored U.S. coffee supplies to a 11-1/2 yr low of 1.43 mln bags, (2) the -38% y/y plunge in Aug Columbia coffee exports, the second-largest arabica bean supplier, to a 23-yr low of 374,000 bags, (3) ICO’s estimate for global arabica coffee bean output to fall 6.2% in 2011-12 to 78.3 mln bags, and (4) ICO’s statement that coffee supplies will be “tight” the rest of the year as stockpiles in producing nations stay near a 40-yr low of 13 mln bags.
Fundamental Outlook—Medium-Term Bearish —Coffee prices slipped to a new 8-1/4 month low, turning the medium-term trend bearish. Coffee production in 2010/11 rose +8.8% y/y to a record 137.9 mln bags (USDA), but production should fall -2.1% y/y 135 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 slid to a 1-year low and are well below March’s 32-yr high. Bearish factors include (1) ICO data showing that cocoa production in Ghana, the world’s second-biggest producer, rose to a record 1.025 MMT in Aug, (2) ICO’s hike in its global cocoa production estimate for 2010/11 to 4.2 MMT from a previous estimate of 4.025 MMT, along with the hike in its global cocoa surplus estimate for 2010/11 to 325,000 MT from 187,000 MT, and (3) ICO’s hike in its 2010/11 global cocoa carry-over estimate to a record high of 1.93 MMT, up +18.5% y/y and up from an earlier estimate of 1.82 MMT. Bullish factors include (1) ICO’s hike in its global grindings estimate for 2010/11 to a record 3.83 MMT, and (2) the +3.5% y/y increase in Q1 European cocoa grindings, the first gain in 2 quarters.
Fundamental Outlook—Medium-Term Bearish—Cocoa prices have fallen on increased supplies from Ghana and after the ICO raised its global output and surplus estimates. Long-term global demand remains generally strong (+3.1% in 2010/11), but ICO forecasts that 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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