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Sunday, December 11, 2011

SOFTS OVERVIEW

Although Brazil, the world’s biggest sugar producer and exporter, lowered its 2011/2012 production estimate, ample global stocks and improved harvests in other countries, particularly in India, Thailand and Australia, should more than compensate for the loss. A world glut probably exceeding 6 million metric tonnes is expected with lower prices. Brazil cane may be used for ethanol. 2011/12 coffee production is likely down in Brazil, Vietnam, Indonesia, India and parts of Central America. Also heavy rains in Colombia and Central America have caused losses and quality issues. These regions are sources for high quality Arabica. The Northern Hemisphere peak demand season has begun. But the economic woes especially in the Eurozone are weighing on this market as it is on most commodities. USDA world cotton output is forecast to increase 7.5% this year while global demand drops to a three year low, leaving a “massive” surplus of more than 3.5M metric tons, according to Cotlook Ltd. USDA WASDE projected lower consumption, boosting forecast 2011/12 world ending stocks by 2.7 million bales this month. This is despite major US production issues.

With a 32% increase in production from Brazil and 7% increase in orange production from Florida, one might expect prices to fall, but FCOJ tight short term supplies held prices up. Drought will resume this winter given La Nina’s return. Also the Northern Hemisphere frost/freeze season still lies ahead. Weatherbell anticipates threats again this winter on California, Mexico, Texas and in January in Florida. West African main crop season is underway. Mid season crop deliveries are running above last year in the Ivory Coast and Ghana but output is down in Indonesia. The African rainy season has ended. The dryness developed early in some areas considered a mixed blessing. An eventual adjustment down to overall production is possible given the late wet season shortfalls.

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SUGAR Brazil Sugar, US Sugarbeets

Brazil is the world’s biggest producer (controls half the world market) followed by India, China, Thailand and the United States and the largest sugar exporter, with the United States Department of Agriculture (USDA) estimating nearly 20% of global production and 54% of global sugar exports.

There are two main types of sugar grown in the world: cane and beet. Both produce the identical refined sugar product. Sugar cane is a bamboo-like grass grown in semi-topical regions. It accounts for about 70% of world production. Beet sugar comes from the sugar beet plant, which grows in temperate climates and accounts for the balance of world production. Intemperate weather, disease, insects, soil quality and cultivation affect both cane and beet production, as do trade agreements and price support programs.

India, Brazil, China, Thailand, Cuba and Mexico are among the leading sugar cane producers. European Union nations, the Russian Federation and Ukraine produce the majority of all sugar beets. The European Union, Brazil, Thailand, Australia, Cuba and Ukraine are leading sugar exporters.

Both cane and beet sugar are grown in regions of the U.S.; sugar beet production in the U.S. accounts for about 9% of the world total and cane production about 3% of the world supply. U.S. sugar cane is grown in Florida, Louisiana, Hawaii, Texas and Puerto Rico. Beet sugar is grown in 14 states, with Minnesota, Idaho, North Dakota and California leading production.

Although Brazil, the world’s biggest sugar producer and exporter, has cut its sugar 2011/2012 production estimate because of bad weather, ample global stocks and improved harvests in other countries, particularly in India, Thailand and Australia, should more than compensate for the loss, said economists at Capital Economics. Given the lower prices and world glut, it is more likely Brazil will use more of its sugarcane for ethanol.

http://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/Brazil/BrzSugarcaneProd_0509.pdfhttp://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/USA/sugarbeets.pdf

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China’s net imports of sugar have also been fairly stable and are well below their historic peak, the economists said. Production costs in the sugar market will likely fall over the coming years due to falling oil and other commodity prices, and they expect consumption growth to slow down because of a weak global economy.

Overall, the Capital Economics economists estimate sugar to “be in excess supply over the next two years.”Given all of that, they expect sugar prices to end 2012 around 20% lower than current levels - at about 18 cents per pound. By 2013, they expect to see a further decline to 15 cents.

After reaching 30 year highs in February, New York sugar is on the way to it’s worst yearly performance since 2003. According to Swiss researcher Kingsman SA, global sugar output will exceed demand by 8.4 million tonnes this season. The International Sugar Organization has stated that the global Sugar supply will exceed demand in the season beginning October 1st for the first time in three years. The London-based International Sugar Organization, whose members include 86 countries, says the surplus may reach 4.2 million tons. According to ABN Amro there should be a surplus of sugar of close to six and one half million metric tonnes following the third quarter of 2012. Judy Ganes of J.Ganes Consulting puts the surplus at over 6 million metric tonnes.

India has excess sugar that will no doubt be made available for export. The Thai sugar crop is now entering the supply pipeline and thoughts at this point are that Brazil will see improved output next season. China is expected to produce 12 million tonnes this season. Demand however will be closer to 14 million. China will be importing additional sugar, but it appears they are waiting for lower prices before doing any buying.

Through November 27th Ukraine produced 2.07 million tonnes of refined sugar from sugar beet this season. That’s a whopping 40 percent increase over the same time frame last year. Ukraine’s sugar exports will double in 2011-12 season, the U.S. Department of Agriculture estimates. Rusagro revealed a doubling in sugar output, lifted by a bumper Russian beet crop. However, the USDA officials limited their forecast for Russian sugar output to 4.8m tonnes, citing intelligence that some regions "do not have enough sugar refining capacity to process the record beet harvest".

Sugar output in Brazil’s Center South, the world’s largest producing region, will fall short of previous estimates after heavy rains and then frost hurt crops, industry association Unica said. Freezing weather in June, when its winter in the Southern Hemisphere, pared yields of sugar-cane plants that had also been harmed by drought in previous crops. The estimate for sugar-cane production in the region was also trimmed to 488.5 million tons from 510.2 million tons. Production will fall from 556.9 million tons last year. Given the lower prices, more sugarcane may be used for ethanol production.

Thailand’s Sugar production had been expected to be a record for the second year in a row. The Thai Sugar Millers Corporation said that Thailand could produce as much as 100 million tonnes of Sugarcane in the 2011 – 2012. This would equal near 10 million tonnes of refined Sugar. Early last month, Asian news Indonesian Sugar Association said that the Indonesia's sugar output this year will likely be 2.57 million metric tons, a 4.8% decrease from the association's previous forecast of 2.7 million tons due to weather damage to the crop.

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The European Sugar beet crop is expected to be a large one though recent rains slowed dry down and harvest there into the FSU. France’s Farm Minister revised the forecast for the country’s sugar beet crop upward to 35.5 million tonnes from 34.7. This is an increase of 11.5 percent year over year. At a time when the world is facing its biggest sugar glut in at least four years, trade barriers mean the European Union is contending with a second consecutive annual shortage. While EU output will climb 16 percent to 17.8 million tons in the 12 months through September, production will still be 11 percent lower than where it was seven years ago, according to European Commission data.

China will produce 12 million tons of sugar in the 2011-12 marketing season, up from 11.3 million tons in the current crop year, the U.S. Department of Agriculture estimated this month. According to Ma Zhanping, Vice President of the China Sugar Association, Chinese Sugar production will likely reach 11.5 million tonnes in the 2011-2012 marketing year that begins October 1st.

For the Unites States Projected U.S. sugar supply for fiscal year 2011/12 is decreased 15,000 tons, raw value, from last month, to reflect revised 2010/11 carryover stocks in Sweetener Market Data.

Australia may produce 3.8 million tons of sugar in the 2011-2012 season, Australia & New Zealand Banking Group Ltd. said. Exports may total 2.6 million tons. The glut forecast forced prices below September lows, settling down 22% from peak levels.

Except for Brazil and Australia, major producers are in the Northern Hemisphere. Sugar beets are planted in early spring (Mar-Apr) and harvested in fall. Sugarcane harvests are in September. September low reflects anticipated production. The sugar glut and global economic woes are causing sugar prices to run counter seasonal.

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COFFEE

There are roughly 70 countries involved in the production of coffee. Of these there are five countries/regions that are considered primary producers and exporters of coffee producing over 80% of the world’s coffee: Brazil (30% of the world market), Vietnam, Columbia, Central America and Indonesia. Warehouse supplies have been low of high quality Arabica beans for several years which led prices to the highest levels in 17 years in early May before the sell-off which led to a nearly 15% decline. Warehouse stocks increased this year as increasing production and exports have taken place in the season of diminished Northern Hemisphere demand. Now however the demand is increasing as the cold season begins.

With regard to crop year 2010/11, total production was estimated by the ICO at 133.1 million bags comprising 83.2 million bags of Arabicas and 50 million bags of Robustas. Opening stocks in exporting countries for crop year 2011/12 are estimated at around 17.6 million bags compared to 18.5 million bags in 2010/11, a drop of 4.8%. Stocks held in importing countries were estimated at 21.3 million bags at the end of June 2011. Crop year 2011/12 production has been revised downwards (3.3%) by the ICO to around 127.4 million bags. Adverse weather conditions could have a negative impact on production or post‐harvest activities in Central America and Indonesia. It also seems that Colombia risks recording a low volume of production for the fourth consecutive crop year. If bad weather continues, both production potential and coffee quality in 2011/12 could be affected.

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Coffee crops of the world’s two largest producers of arabica coffee appear will be much smaller than expected. Brazil’s 2012 “on year” coffee crop will be smaller than 2010’s. The countries coffee trees suffered greater frost damage than had been expected. Central America has experienced the heaviest rains in two decades. Colombia’s coffee output alone declined 19 percent in October. World coffee exports as a whole were down 8.7 percent.

Judy Ganes of J. Ganes Consulting noted in her report “A representative from the Colombian Coffee Federation speaking at the IBC-Asia Conference in Vietnam confirmed that not only has the 2011-12 main crop been compromised by too much rain but the expectation is that the mid-crop will also be disappointing, which should keep production from recovering once again. This would mark the 3rd season where Colombian output has been disappointing and the market’s failure to respond is suggesting that the market demand has shifted already to adjust for the limited availability from the world’s largest supplier of washed Arabica coffee.”

The ICO reported that the recently heavy rains have damaged a sizable chunk of Colombia’s coffee crop. The country’s 2011-2012 coffee crop forecast has been reduced 5.9 percent to 8 million 60 kilo bags. The 2010-2011harvest totaled 8.9 million sixty kilo bags. Colombia is the world’s second largest producer of arabica coffee following Brazil. Earlier, during the first week of November the forecast was cut from 9 to 8.5 million sixty kilo bags for this growing season. The Colombian arabica coffee bean is favored by a majority of brewers. Lower production in Colombia contributed to a slide in stockpiles of the bean brewed by Starbucks Corp. and Dunkin’ Brands Group Inc. and higher prices early in the year.

A slow arrival of the wet season in Brazil had the growers nervous about the flowering. But rains came in October. Last week was wet and rains will continue favoring week 1 eastern coffee areas which had been driest. It continues wet in Columbia.

Brazilian production in 2011/12 is 10.3% lower than in the previous crop year. In Colombia, despite an expected increase of 7.9% in 2011/12, production has not yet recovered to its previous levels. Production in Peru should record a further increase, to a level of 4.7 million bags in 2011/12 compared with 4 million bags in 2010/11, a rise of 17.6%.

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Central America and Mexico produce more than one-fifth of the world's arabica coffee. A slight fall in production is anticipated in much of Central America, as a result of higher than normal rainfall in some areas. Compared to their production levels in crop year 2010/11, output in El Salvador and Guatemala may decrease by 21.4% and 8.9%, respectively. Production in Honduras and Nicaragua could remain roughly unchanged and in Costa Rica it might increase by 3.5%. Costa Rica is expected to produce two million bags of coffee and is gearing up to produce and provide 20 percent of the worlds green coffee exports year 2015. Starbucks is funding some expansion and modernization efforts there. Mexico is having a banner growing season. October coffee exports were 70% above last year. This season’s crop will be much larger than last year.

Note the heavy rains forecast for the winter for Central America into Columbia.

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In Africa, weather conditions are favorable to a production increase of 19.6% during crop year 2011/12, from a level of 13.6 million bags in 2010/11 to 16.3 million bags. Improved performances are forecast, particularly in Ethiopia, with an output of 6.4 million bags compared to 5 million bags in 2010/11. Uganda is expected to maintain its production performance with a volume of 3.5 million bags in 2011/12 compared to 3.3 million bags in 2010/11. Côte d’Ivoire seems to have overcome production difficulties associated with its recent political crisis, with an estimated output of 1.6 million bags compared to one million bags in 2010/11. According to a government official, Kenya’s coffee output is projected to increase 8 percent to 54,000 tonnes in the 2011/12 crop year. The official also made it known that at least 20 percent of the country’s 2010/11 coffee output of 50,000 tonnes had been smuggled through neighboring countries. In Asia, Indonesia is anticipating a total production volume of 6.7 million bags in crop year 2011/12 compared to 9.2 million bags in the previous crop year, a fall of 27.3%. Indian production could fall by 16.5% from 6.6 million bags in 2010/11 to 5.5 million bags in 2011/12. Exports are expected to drop 300,000 tons. Coffee productivity in Indonesia decreases from year to year due to poor climate conditions in the new cold Pacific Decadal Oscillation, La Nina dominant mode which instead of sunny hot temperature when coffee plants are flowering, brings cloudy rainy weather according to locals. Vietnam is expected to record a 5% fall in relation to crop year 2010/11, from 19.5 million bags to 18.5 million.

Total production according the ICO for crop year 2011/12 is now estimated at 127.4 million bags while world consumption is expected to remain buoyant, a situation which should support firm price levels.

Prices normally rise in the fall into the high demand northern hemisphere season.

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Prices rallied mid-week as the world markets beathed a sigh of relief over the EU temporary economic solution but gave beack some of the gains. Speculators remain slightly bearish.

COTTON

United States: Cotton Brazil: Cotton China: Cotton

The 2011/12 U.S. cotton supply and demand estimates include lower production, domestic mill use, and ending stocks compared with last month. Production is reduced 473,000 bales due to decreases in all regions except the far West. Domestic mill use is reduced 200,000 bales based on lower-than-expected use in recent months. The export estimate remains at 11.3 million bales. Ending stocks are now forecast at 3.5 million bales, or 23.5 percent of total use.

Lower consumption is boosting forecast 2011/12 world ending stocks by 2.7 million bales this month. Beginning stocks are raised nearly 300,000 bales and world production is forecast nearly 500,000 bales lower, due mainly to the reduced forecast for the U.S. crop. World consumption is reduced sharply, reflecting continued weak mill demand owing to an uncertain world economic outlook and a loss of fiber share to polyester. Consumption is lowered for most major world cotton spinners and includes a 1.0-million-bale reduction for India and reductions of 0.5 million bales for both China and Turkey. World trade is revised up slightly, despite lower world consumption, due to strong import demand by China, which is supported by purchases for the national reserve. World ending stocks are now forecast at 57.7 million.

http://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/USA/cotton_upland.pdfhttp://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/Brazil/BrazilCotton.pdfhttp://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/chi/Cotton.pdf

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World cotton demand will be 1.7 percent lower than forecast last month, leaving a “massive” surplus of more than 3.5 million metric tons, according to Cotlook Ltd., a research company in Birkenhead, England.

The USDA forecasts Australia's 2011/12 cotton production at 5.0 million 480-pound bales, up 0.5 million or 11 percent from last month. Improved rainfall and importantly, irrigation water reservoirs, which remain at over 90 percent capacity, raise prospects of high farm-gate water allocations and increased irrigation of cotton for 2011/12. China is expected to produce 33 tonnes of cotton for the 2011-2012 marketing year, up from 30.5 million tonnes in 2010-2011. On the North China Plain, drier weather favored cotton harvesting,

Brazil’s 2010/11 cotton production was estimated at 9 million bales up 3.55 million bales or 65 percent from 2009/10. Cotton planting for Brazil’s main season is from October through December and then followed by the second season from January through February. Rains are falling in cotton areas of the central where the wet season started late.

Brazil was only a marginal producer of cotton but burst into prominence this year, jumping into the No. 4 slot among world exporters of the fiber. This comes on the heels of winning an international dispute at the World Trade Organization against U.S. subsidies. Brazil produces close to 2 million tonnes of high-grade, long-fiber cotton lint.

Price action reflects global demand weakness, reaching recent lows, down over 25% from March peak.

Speculators increased the net long position on cotton 3,187 positions.

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ORANGE JUICE

United States: Orange Juice , Brazil: Orange Juice

The two main citrus players are Florida in the United States and São Paulo in Brazil. Production of orange juice between these two makes up roughly 85 percent of the world market. Brazil exports 99 percent of its production, while 90 percent of Florida’s production is consumed in the US. Brazil is the largest orange producing nation in the world, and production is located primarily in the state of São Paulo, which accounts for approximately 80% of Brazil's production and 53% of total global FCOJ production (in the region of Campinas, São Carlos, São José do Rio Preto and Barretos), and the western part of the state of Minas Gerais.

Both Florida and Brazil are fighting not only weather but also disease with citrus greening and SDS causing loss of trees. Growers continue to remove unproductive trees infected with the canker and greening diseases. Florida citrus growers have feared citrus greening would threaten their existence since the state's first discovery of the bacterial disease in 2005.

Now Florida growers and researchers have discovered greening poses an even greater menace because the disease cuts down young trees before they reach maturity. Without new trees to replace those lost not just to greening but other diseases, Florida's citrus tree population would gradually decline until it could no longer sustain the industry.

http://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/USA/citrus.pdfhttp://www.usda.gov/oce/weather/pubs/Other/MWCACP/Graphs/Brazil/BrzOrangeProd_0509.pdf

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Florida is experimenting with groves with denser tree plantings and improved irrigation and fertilization to reduce the time from planting to crops to three years and increase yields. This would offset losses due to greening.

The 2011-2012 Florida all orange forecast released today by the USDA Agricultural Statistics Board is 150.0 million boxes, up 2 percent from October and 7 percent more than last season’s production. The total is comprised of 75.0 million boxes each of the non-Valencia oranges (early, midseason, Navel, and Temple varieties) and Valencia oranges. The Navel orange forecast is reduced to 2.5 million boxes, 3 percent of the non-Valencia total.

A production dropoff due to Florida Hurricanes in 2004 and 2005 never fully recovered. The recent four winters have been characterized by freezes and in three years some level of La Nina drought. The projection for frozen concentrated orange juice (FCOJ) remains 1.60 gallons per box of 42° Brix concentrate. Last season’s final yield for all oranges was 1.586081 gallons per box, as reported by the Florida Department of Citrus. Yield projections for the early-midseason and late components will be published in January. Weather conditions in Florida during early 2011 were characterized by drought conditions covering the majority of the citrus growing region. Summer rains though have been abundant and year to date totals are near to above normal in parts of the citrus belt.

Freezes in California, South Texas and Mexico are likely in the current pattern. Although the current pattern does not threaten freezes for Florida through Christmas, La Ninas are characterized by periods of up to 4-6 weeks with cold threats into the east and south which would supercharge this market. Freezes do the most damage early (through mid January) when fruit is still on the trees and mostly immature. For later freezes, a damaged crop can often be salvaged for juice after a freeze.

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Brazil’s current orange crop should yield 495 million 90-pound boxes of the citrus, up 32% from the previous season, thanks to favorable weather for blossoming and fruit development, the U.S. Agricultural Trade Office in Sao Paulo said. Brazil citrus harvest is progressing after rain delays in recent weeks. Brazil crop may be a record crop; but a record export is not expected due to low carryover.

With some support from four seasons of freezes in Florida, prices climbed in steps to over $2 again early this summer. After fears about Emily threatening Florida fizzled in mid July, speculators sold off 20% of the hurricane premium. Despite the fact the hurricane season brought no damage, tight supplies have helped keep prices high. There is also concern about the winter freeze/frost season. A resumption of the dryness experienced last winter has started and should continue with La Nina’s return. Recently, tight supplies have helped boost prices even as most commodities have declined. Also there has been the freeze risk premium. Given the lack of extreme cold so far, some of that came out of the market this week.

Seasonal FCOJ price reflect the speculation in advance of the Brazil freeze season, the Atlantic hurricane season and then the Florida freeze seasons.

COCOA

In central Africa, the main crop season extends from September/October to harvest in January or February. The rainy season began in May and ends in October.

Cocoa prices plunged, capping the longest slump in 50 years, on signs that supplies are rising in the Ivory Coast, the world’s biggest producer. Prices have dropped 46 percent since touching 32-year high in March, when a civil war disrupted supplies following a disputed November election.

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The commodity dropped as global output rose and slowing economies in the U.S. and Europe signaled supply may exceed demand for a second year. Increasing availability of cocoa from Western Africa is still the dominant force in the market.

Cocoa fell 19% in New York and 20% in London over the past two months as supplies from West Africa were better than initially estimated. Bean arrivals at the Ivory Coast ports of Abidjan and San Pedro were 4,28,200 tonne in the week ended December 4, up 16% from a year earlier. In Ghana, cumulative cocoa purchases by Cocobod in October reached about 152,000 tonnes. This was well above the 89,000 tonnes recorded at the same time during the past crop year.

The International Cocoa Organization forecast a world output surplus of 325,000 tons for the crop year, up from an earlier estimate of 187,000 tons, leaving end-of-season stocks at 1.99 million tons.

In Indonesia, industry data showed a reduction in exports of cocoa beans. Compared to the same period of the last cocoa season, cocoa bean exports were about 7,000 tonnes as against 34,000 tonnes. Heavy rains and black pod disease are expected to affect the 2011/2012 crop. More than half of Indonesia's cocoa plantations are located on Sulawesi island, with the remainder on the island of Sumatra, Java, Bali, Kalimantan, Maluku and Papua.

In Africa, precipitation has shifted south and diminished as it usually does seasonally. In some areas the dry season arrived early. It is with mixed blessings. Some western areas where spotty black pod disease and soggy fields had been report welcome the dryness welcome the sun and drier weather. In the center west, it has been dry for three weeks in some spots which could reduce production. Showers will be most apparent southern areas especially southeast Nigeria and southern Cameroon to Gabon. Any further reports of dryness related concerns could prompt some market bounce. The market is overly bearish and would be vulnerable to any negative news about the main crop. However, I should be noted that every report and early deliveries have caused an uptick in the expectation for surplus to date.

Note the rainfall deficits in southern growing areas. Rainfall has for the most part moved south.

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This is the departure of rainfall from normal since July 1, 2011 through December 10, 2011.

Here is the cumulative precipitation southern Ivory Coast.

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As noted, prices have declined 46% since the peak as political unrest ended and the risk premium has been taken out helped by the large global surplus in 2010/11.

Expectations for the demand situation of cocoa beans indicated that weak global economic conditions will limit cocoa consumption in developed countries. However, the growing taste for chocolate in Asia, particularly China, means an area the size of the Ivory Coast needs to be brought into cocoa cultivation, according to industry insiders.

Cocoa has two crops typically harvested. The primary producing crop runs from Oct-Mar, with a smaller crop May-Aug. The June low coincides with deliveries against the July contract, the Aug-Sep high with the end of the crop year. More downside are seen in recent decades in the October and December periods. Note recent action reflects the September/October sell off reinforced by good and in some areas record crops.

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Speculators are increasingly bearish cocoa with a net change 3,485 positions short.