Soft Commodity Qtrly Report: Coffee, Cocoa & Sugar Decline, While Cotton Rallies On Speculative Buying

April 04, 2013

Cotton supply tied up in China helps prices, but others pressured by inventory gluts.



Coffee prices as measured by the ICE futures contract (KC) finished the first quarter at $1.3715 a pound, down 15 cents, or 10 percent, on the quarter. The market has been in a downtrend for almost two years since a peak of over $3.00 a pound.

The harvests in Central America are now mostly complete. Producers from Central America, and notably from Brazil, have been reluctant to follow the market down, and as a result, cash market premiums have firmed and new export sales have slowed during the past two months.

However, this backlog of selling is now likely to dampen any rally in the short term. Traders are now beginning to focus on Brazil's 2013 harvest, which begins in May in the southern hemisphere. Brazil is by far the world's largest coffee producer, producing roughly one-third of total world production, and many traders are expecting a near-record crop of between 50 to 53 million 60-kg bags.

Money managers have added slightly to their very profitable short positions, originally established back in the last quarter of 2012 around 20 to 25 cents higher than today's values, and are currently net short 26,000 lots compared with net short 22,000 lots three months earlier.

Coffee Q1_2013


ICE Futures cocoa prices declined during the first quarter by $97 a ton to settle at $2,170 a ton, down 4 percent over the past three months.

The latest forecast from the Intentional Cocoa Organization for the 2012/2013 crop year ending September 30 projects the cocoa market will return to a small supply deficit of 45,000 tons compared with a surplus of 90,000 tons a year earlier.

The anticipated deficit reflects a projected increase in world grindings by 60,000 tons and a decrease in production of 72,000 tons. A deficit of only 45,000 tons is not sufficient to put much of a dent in world stocks, which finished last year at a comfortable 48 percent of use.

Cocoa traders remain concerned over sluggish consumption, especially in Europe, the largest chocolate consumer. Both Ghana and the Ivory Coast purchases have been running below expectation, and a strong midcrop will be needed to keep pace with expected production and exports for the season.

Money managers seem to have thrown in the towel, reducing their longs to 13,000 lots compared with net long 39,000 lots three months earlier.

Cocoa Q1_2013


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