Foods and Softs Outlook - An Excerpt from CRB'S Futures Market Service

COTTON—Dec cotton prices are consolidating just above the recent 1-year low. Bearish factors include (1)  the rise in Chinese cotton imports from India by +50% in Jan-Jun y/y as US cotton exports to China fell  -12% in Jan-Jun y/y, and (2) an estimated +11% rise in India’s 2009 cotton crop to a record 35 mln bales.  Bullish factors include (1) excessive rainfall in the US cotton-growing regions due to recent hurricanes, (2)  the USDA’s cut in 2008-09 US and global carry-over, and (3) the USDA’s forecast for a 2008 US crop of 13.77 mln bales (-28% y/y) due to a 25-year low in planted acres. Large specs as of Aug 26 had a small  long position of 4,753. Cotton summary: 2008-09 US production 13.767 mln bales (-28%), 2008-09 US  carry-over 4.6 mln bales (-55% y/y), 2008-09 global carry-over 50.98 mln bales (-15.5% y/y).

COFFEE—Dec Nybot Arabica coffee prices fell to a 2-week low but remain in a 5-1/2 month range. Bearish  factors include (1) dollar strength and general commodity selling, (2) Brazilian coffee exports in Aug +7.9%  m/m, (3) ICO’s forecast for a 8.5% hike in global coffee production in 2008/09 to 128 mln bags from 118  mln bags in 2007/08, and (4) the USDA’s forecast of a 36% y/y rise in Brazil’s harvest starting July to 51.1  mln bags (vs last year’s 37.6 mln bags). Bullish factors include (1) coffee growers withholding bean sales  until prices rise, (2) speculation Brazil may subsidize its coffee farmers to ensure a minimum price, and (3)  the 6-8 mln bag 2007-08 world coffee deficit. As of Aug 26, large specs sharply increased their small to a  now moderate long position of 13,430. USDA coffee summary: 2007-08 world coffee production 117.8 mln  bags (-4.7% vs 2006-07’s 122.9 mln); 2007-08 world ending stocks at a record low 18.3 mln bags.

COCOA—Dec cocoa prices dropped to a 2-week low but remain in a 5-month range. Bearish factors include (1) the +9% y/y rise in Ivory Coast exports from Jan-Aug, and (2) ICO’s forecast of a +8% increase in the  2007-08 global cocoa crop to 3.65 mln tons. Bullish factors including (1) a strike by Ivory Coast cocoa  exchange workers, (2) the threat of Black Pod disease due to excessive wet conditions, and (3) ICO’s  upward revision of its global cocoa deficit forecast to 88,000 MT (from 41,000 MT) due to the cut in its  2007- 08 global cocoa crop forecast to 3.65 mln tons. Large specs as of Aug 26 increased their moderate long position to 12,780.

SUGAR—Oct sugar prices in the past week fell to a 5-week low. Bearish factors include (1) the surge in the dollar to a 10-3/4 month high which has precipitated general commodity weakness, and (2) the plunge in  crude oil prices which is undercutting sugar and ethanol prices. Bullish factors include (1) Brazil’s statement that heavy rains in early Aug may cut its sugar cane output by 10 MMT, (2) ISO’s cut in its forecast for the  2007-08 sugar surplus to 7.8 MMT from 9.3 MMT, and (3) the USDA’s forecast for a -2.2% drop in 2008-09 (Oct-Sep) global sugar production. As of Aug 26, large specs increased their large long position to 149,819. USDA Sugar crop summary: 2007-08 world production 165.4 MMT (+0.8% y/y vs 164.1 MMT in 2006-07), consumption 156.3 MMT (+4.6% y/y from 149.4 MMT in 06-07), ending stocks 44.9 MMT (+8.2% y/y from 41.5 MMT in 06-07).

ORANGE JUICE—Nov orange juice prices sank to a 2-week low on indications Hurricane Hanna will miss  Florida’s orange groves. FCOJ prices recently posted a 3-year nearest-future low on bearish factors  including (1) strong Brazilian OJ exports (+12.6% y/y in July), (2) the USDA’s forecast of a +32% increase in production this year, and (3) the three-year-long slump in demand (-5.3% y/y in week ended July 5) and  the sharp rise in inventories (June +67% y/y). The arrival of the most active part of hurricane season is  supporting prices. Large specs as of Aug 26 had a small long position of 2,267. USDA orange summary:  Florida 2007-08 orange crop 170 mln boxes (+31.2% from 2006-07’s 129 mln 90-lb boxes); US 2007-08 all-orange production 9.24 mln tons (+34% y/y).

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