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Coffee, Sugar, Cocoa Prices Outlook - January 14, 2011

Coffee, Sugar, Cocoa Prices Outlook - January 14, 2011 : March cotton prices rallied to a 2-week high and are 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) 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, (2) the worst floods in 50 years that have decimated cotton crops in Australia, the world's fourth-largest exporter, and (3) insatiable Chinese demand after Dec China cotton imports surged +113% y/y to 2.1 mln bales. 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 have firmed and are 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 statement from the Farm Minster of India, the world's second-biggest sugar producer, that it will delay sugar exports until at least Jan 30,

(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 climbed to a 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) ICO's statement that Columbia's coffee output has been affected by coffee-leaf rust disease, which may delay a return to "normal production levels,"

(3) tight supplies as NYBOT-monitored coffee stockpiles have declined for 26 straight months to a 10-1/2 year low of 1.68 mln bags, and

(4) 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."

Fundamental Outlook-Medium-term Bullish-Coffee prices rallied 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 are trading modestly below last month's 5-month high. Bullish factors include
(1) concern that civil unrest in the Ivory Coast from the disputed outcome of its presidential election will cut its cocoa output, although that hasn't happened as yet,

(2) the -16% y/y drop in Nov Ivory Coast cocoa exports, and

(3) ICO's hike in its 2009-10 global cocoa deficit estimate to 82,000 MT from as earlier estimate of 72,000 MT. Bearish factors include

(1) ICO's hike in its global cocoa surplus estimate for the 2010/11 season to 100,000 MT from an earlier estimate of 75,000 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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