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Saturday, January 22, 2011

Coffee looks the best bet for investors in soft commodities

Coffee looks the best bet for investors in soft commodities, with futures for arabica beans potentially "targeting" the $3 a bag level they have crossed only twice in history, Macquarie analysts said.

Cotton appeared the biggest risk in the complex, with the prospect of a jump in sowings, sparked by farmers receiving "never seen before" margins, sparking a rapid correction in prices.at 11.30am on alternate Wednesdays. Admission and light refreshments are free.

"We would expect a minimum 12% expansion in US plantings," the bank said.

"If this is achieved, then we may see a sentiment-based lowering of prices post the release of USDA's March plantings estimates."

The speed of the ascent in cotton futures, which doubled in New York during the second half of 2010, "suggests that the fall in prices, when it eventually takes place, could be substantial", Macquarie added.

Even so, the crop was not set to fall much below 100 cents a pound until next year, compared with a price of 152.72 cents a pound for New York's March contract in late deals on Thursday, up 2.5% on the day.

'Fungus incidences'

For coffee, however, there was little prospect of a jump in production, given the return of Brazil, the top producer, in 2011-12 to an "off" season in its biennial cycle, "which will put the global market straight back into deficit".

Colombia and central American producers, meanwhile, were seeing output dented by "various fungus incidences".

Yet demand was remaining firm, supported by economic recovery in developed countries and growth wealth in emerging nations.

"The reality is that coffee demand is highly price inelastic and we only a modest dent to demand growth," Macquarie said.

Arabicas vs robustas

With registered inventories of arabica beans already low, a further rally looked on the cards, the bank said, adding that "it is not inconceivable that New York prices soon start targeting 300 cents a pound".

New York's benchmark March arabica lot closed on Thursday up 0.30 cents at 231.80 cents a pound. The near-term lot has only twice before crossed 300 cents a pound - in 1977, on a devastating frost in Brazil, and 1997, on an inventory squeeze.

The price strength looked set to spread over into robusta beans, which are traded in London, as "roasters adjust their blending requirements to something more economical".

Nonetheless, Macquarie said it was "more bullish" on arabica futures, which would retain a "significant" premium over robusta alternatives. For the latest updates PRESS CTR + D or visit Stock Market news Today

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