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COFFEE, COCOA, COTTON, SUGAR, Foods and Softs Outlook - January 21, 2011

COFFEE, COCOA, COTTON, SUGAR, Foods and Softs Outlook - January 21, 2011 COTTON
March cotton prices are trading on a firm note, modestly below last month's all-time high of $1.5912 a pound, the highest price since cotton began recorded trading 140 years ago. Bullish factors include (1) insatiable Chinese demand after Dec China cotton imports climbed +113% y/y to 461,700 metric tons and for all of 2010 surged +86% y/y to 2.84 MMT, (2) USDA's Jan 12 cut in its global cotton production estimate for this year to 115.46 mln bales, down from a Dec estimate of 115.53 mln bales along with the cut in its global carry-over estimate to 42.84 mln bales from last month's estimate of 43.39 mln bales, and (3) the worst floods in 50 years that have decimated cotton crops in Australia, the world's fourth-largest exporter. A bearish factor was the prediction from the CAB of India that cotton output in India, the world's second-biggest grower, may be 32.9 mln bales in the year that started Oct 1, higher than government estimates of 32.5 mln bales.

Weekly US cotton exports (week ended Jan 6) were 268.1 thousand running bales; cumulative 2010/11 (Aug-July) exports up +34% y/y.

Fundamental Outlook- Medium-term Bullish -Cotton prices are consolidating near recent record highs due to strong demand and limited supplies, and after the USDA cut its global carry-over estimate to 42.84 mln bales, a 15-year low.

SUGAR
March sugar prices are consolidating moderately below their recent 30-year high. Bullish factors include (1) the -81% y/y plunge in output in Brazil's Center South, the world's largest producing region, to 67,500 metric tons in the second half of Dec, (2) flooding in Australia, the world's third largest sugar exporter, which may cut its sugar output by 21% this year to a 9-yr low of 3.58 MMT, and may reduce the country's sugar output for 2 to 3 years due to the loss of sugarcane plants, (3) 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-yr low of 32% and (4) ISO's cut in its 2010-11 global sugar surplus estimate to 1.3 MMT from a Nov estimate of 2.0 MMT. A bearish factor is concern that China's steps to curb inflation will cut its demand for commodities.

Fundamental Outlook-Medium-term Bullish -Sugar prices are trading moderately below their recent 30-year high as the fundamental outlook remains bullish on tight supply channels and the possibility that India may limit sugar exports. 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-year low of 32%.

COFFEE

Coffee prices retreated from their recent 13-1/2 year high. Bullish factors include (1) 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-yr cycle, (2) tight supplies as NYBOT-monitored coffee stockpiles have declined for 26 straight months to a 10-1/2 year low of 1.664 mln bags, and (3) ICO's statement that coffee stockpiles in producing nations dropped to 12 mln bags in 2010, the lowest since ICO records began in the 1960s, which has led to a "precariousness of the supply/demand balance." A bearish factor is ICO's report that global coffee exports Jan-Nov are at 87.1 mln bags, down -1.4% y/y from 88.3 mln bags for the same period in 2009.

Fundamental Outlook-Medium-term Bullish-Coffee prices fell back from their recent 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 pushed up to a 6-month high. Bullish factors include

(1) the EU's sanctions on the Ivory Coast, which may limit European cocoa supplies,
(2) concern that civil unrest in the Ivory Coast from the disputed outcome of its presidential election will cut its cocoa output, although the impact has been minor thus far,
(3) the -16% y/y drop in Nov Ivory Coast cocoa exports, and
(4) 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-Supportive-Fundamentals remain supportive 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%). For the latest updates PRESS CTR + D or visit Stock Market news Today

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