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Foods and Softs Outlook - February 18, 2011


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

COTTON

March cotton prices continued their parabolic rise as they posted an all-time high of $2.0402 a pound, the highest price since cotton began recorded-trading 140 years ago.  Bullish factors include (1) the action by Australia, the world's fourth-largest exporter, to cut its cotton production estimate by 6.2% from a Dec estimate after the worst floods in 50 years decimated its cotton crop, (2) USDA's Feb 9 cut in its global cotton production estimate for this year to 115.25 mln bales along with the cut in its global carry-over estimate to a 15-year low of 42.81 mln bales, and (3) insatiable Chinese demand after China cotton imports for all of 2010 surged +86% y/y to 2.84 MMT.  A bearish factor is the prediction from the crop researcher Informa Economics that US cotton planting in 2011 will rise to 13.335 million acres, up +22% y/y.

Weekly US cotton exports (week ended Feb 10) were 393.9 thousand running bales; cumulative 2010/11 (Aug-July) exports up +49% y/y.

Fundamental Outlook- Medium-term Bullish -Cotton prices are firmly bullish as they continue to post record highs due to strong demand and limited supplies, and after the USDA cut its  global carry-over estimate to 42.81 mln bales, a 15-year low.  The world stocks/use ratio is forecast at less than 37% this year, the lowest since 1993-1994.

SUGAR

March sugar prices corrected down to a 1-1/2 month low from their recent 30-yr high.  Bearish factors include (1) the prediction from Unica that sugarcane output in Center South, Brazil's main growing region, will rise to 575 MMT this year, up +6% y/y, and (2) the statement from  Khaleej Sugar, the world's largest refiner, that global sugar buyers are delaying purchases until Brazil begins its harvest due to high prices.  Bullish factors include (1) ISO's forecast for a 1.7% rise in global sugar demand this year that will cut the inventory-to-consumption ratio to a 20-year low of 32%, and (2) reduced output  in Australia, the world's third largest sugar exporter, after floods and cyclones may cut its sugar output by 21% this year to a 9-yr low of 3.58 MMT and may reduce its sugar output for the next 2-3 years due to the loss of sugarcane plants.

Fundamental Outlook-Bull market correction -Sugar prices are correcting lower from their recent 30-yr high.  The fundamental outlook remains bullish on tight supply channels and the possibility of reduced output in India and Australia.  ISO is forecasting a small 1.3 MMT global sugar surplus for 2010/11 after two years of deficits.  ISO is forecasting a 1.7% rise in global sugar demand this year that will cut the inventory-to-consumption ratio to a 20-yr low of 32%.

COFFEE

Coffee prices soared to a 13-1/2 year high.  Bullish factors include (1) heavy fund buying after ICO's statement that global coffee supplies will likely be "tight" through the rest of the year as stockpiles in producing nations stay near a 40-year low of 13 mln bags, which will further extend a "precariousness of the supply/demand balance," (2) tight supplies as NYBOT-monitored coffee stockpiles have fallen for 27 straight months to a 10-3/4 year low of 1.605 mln bags, and (3) ICO's prediction that Brazil's Arabica bean output may fall 13% in the year that begins July 1 with coffee plants in the lower-yielding half of their 2-year cycle. A bearish factor is ICO's report that total 2010 global coffee exports were 97.5 mln bags, up +1.4% y/y.              

Fundamental Outlook-Medium-term Bullish-Coffee prices climbed to a new 13-1/2 year high and the medium-term trend remains bullish on tight global supplies and strong demand.  Coffee production in 2009/10 fell -4.5% y/y to 122.9 mln bags (ICO), but production should rebound to +9.6% y/y 134.6 mln bags in 2010/11 (ICO).  Brazil's 2010/11 (Jul-Jun) production will rise 23% y/y to 55.3 mln bags on a favorable 2-yr cycle (USDA). 

COCOA

Cocoa prices rallied further to a 14-month high.  Bullish factors include (1) a lack of exports from Ivory Coast , the world's biggest producer, and the statement from Ivory Coast's President-elect that he will extend a ban on exports as the disputed outcome of the Nov presidential election continues, (2) concerns that cocoa being stockpiled in humid Ivory Coast warehouses will go bad if not exported soon, and (3) ICO's hike in its 2009-10 global cocoa deficit estimate to 82,000 MT.  Bearish factors include (1) ICO's hike in its global cocoa surplus estimate for the 2010/11 season to 100,000 MT, and (2) weak demand after Q3 US cocoa grindings fell to +1.7% y/y from +12% y/y in Q2 and Q3 European cocoa grindings fell -4% y/y, their first decline in a year. 

Fundamental Outlook-Bullish-Fundamentals are bullish on supply concerns due to civil unrest in the Ivory Coast and after ICO raised its deficit for the current 2009/10 (Oct-Sep) marketing year to 82,000 MT, although a surplus appears likely for 2010/11.  World cocoa output in 2009/10 is seen changed y/y at 3.613 MMT.  Demand in 2009/10 is up 4.0%, leading to a 4.1% y/y draw-down in ending stocks to 1.619 MMT and a tight stocks/consumption ratio of 44.6% (vs yr-earlier 48.4% and the 10-yr avg of 47.1%).

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