Soft Commodity Q4 Report: Low Inventories Buoy Cocoa; Growing Stocks Weigh On Coffee, Cotton & Sugar

January 02, 2014

Cocoa, the clear outperformer of the group, faced many oversupply issues.



Coffee 4Q2013

Coffee prices declined during the past three months. Prices as measured by the ICE futures contract (KC) finished the fourth quarter at $1.11 a pound, down 6 cents, or 5 percent.

According to the latest USDA report, total world production of coffee for the 2013/14 year ending Sept. 30 is projected at 150.4 million 60-kg bags. Of the two largest producers, Brazil is expected to produce 53.1 million bags (down marginally), and Vietnam 28.5 million bags (up 9 percent). Total world demand is expected to be 144.4 million bags. The USDA estimates total world year-end coffee stocks to rise to 36.3 million bags, the highest level in five years.

ICE-certified stocks have increased as well. Although new certifications have slowed to a trickle over the past six months, the total ICE certified stock position currently stands at 2.72 million bags compared with 2.57 million bags a year ago.

The market has been in a long-term downtrend and reached 4 ½-year lows in early November. For all of 2013, coffee prices have declined by 47 cents a pound and traversed a range of 54 cents. The yearly high was made at $1.58 a pound in mid-January and the low of $1.04 a pound was made at the beginning of November.

Money managers have been gradually reducing their net short positions and are currently net short 9,600 lots compared with net short 23,800 lots three months earlier.


Cocoa 4Q2013

Cocoa prices as measured by the ICE futures contract (CC), rose during the fourth quarter to settle at $2,709 a ton, up $72 a ton, or 3 percent over the past three months.

According to the International Cocoa Organization, year-end stocks as of Sept. 30, 2013, were 1.67 million tons, down from 1.83 million tons a year earlier. More importantly, stock drawdowns are expected to continue as a result of increasing demand.

Grindings, which approximate consumption, rose on an annualized basis in the third quarter by 5 percent in Europe and 8 percent in the U.S. Strong demand is expected to continue, aided by a general economic recovery in North America and Europe, and increasing demand from emerging markets, especially India.

Production also declined during the year ending Sept. 30, 2013, as a result of lower yields from West Africa. With West Africa producing 70 percent of total world production, any political disturbance or adverse weather could tip the balance even more quickly into larger deficits. Some traders are currently projecting supply deficits will remain for the next three to four years.

During 2013, cocoa prices rose by $473 a ton, or 21 percent. The low for the year was made in early March at $2,046 a ton, while the yearly high was made in early December at $2,840 a ton, representing a range of $794 a ton.

Money managers are big believers in the cocoa market. They have continued to add to their long positions and are currently net long 81,600 lots compared with net long 63,700 lots three months earlier.


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