AFKI Commodities Report: Cocoa Up On Grindings Data

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Written by Lynda Davies

Cocoa futures found renewed support this week on positive grindings data, seen as a barometer of demand, in Europe and North America. Arabica coffee turned lower again while sugar is expected to test new lows amid plans for higher exports from India. Gold climbed to a one-month high on renewed safe-haven appeal and stronger Chinese buying.

Cocoa futures moved up following positive grindings data from the Brussels-based European Cocoa Association (ECA) and Washington, D.C.-based National Confectioners Association.  The volume of cocoa beans processed by European chocolate manufacturers rose 6.2 percent in the final quarter of 2013 compared with the same prior-year period, data released by the ECA on Jan. 15 showed. The increase exceeded expectations.

The market seemed to pay scant attention to a 9-percent downturn in Malaysia’s fourth-quarter cocoa grind and a full calendar-year drop of 4.6 percent, reported by the Malaysian Cocoa Board.

Futures prices in London and New York rose on the positive European demand indications, with March cocoa on NYSE Liffe closing at £1,765 a tonne on Jan. 15 and cocoa for delivery in the same month on the ICE Futures U.S. exchange finishing at $2,752. Liffe cocoa had closed last week at £1,734 a tonne and ICE cocoa at $2,705.

On Jan. 16, the latest data from the National Confectioners Association showed North American cocoa grindings rose 4.37 percent in the fourth quarter of 2013 to 125,332 tonnes from the same period in 2012.

Global supplies of cocoa beans during the current crop year (Oct. 1-Sept. 30) are expected to fall short of demand by 69,000 tonnes, according to the latest estimates by the London-based International Cocoa Organization.

Cocoa futures prices in New York and London markets gained more than 20 percent in value in 2013, bolstered by supply concerns and by increasing consumption of the main chocolate-making ingredient. Supply concerns related to dry weather conditions in West Africa, where around 70 percent of the world’s cocoa is typically produced.

However, some analysts question whether cocoa will see a repeat this year of 2013’s bull run. Cocoa bean arrivals at ports in top-producing Côte d’Ivoire and Ghana have been surging in recent weeks, causing market participants to reduce their expectations of global supply deficits.

Bean arrivals at ports in Côte d’Ivoire rose 33 percent from the start of new cocoa year through Jan. 12, while in Ghana bean purchases rose 27 percent from Oct. 1 to Dec. 19, according to a Bloomberg report citing data from Knowledge Charts, a unit of Pennsylvania-based Commodities Risk Analysis.

Lower export volumes this month from Vietnam, as well as news of a smaller 2013-2014 crop from Brazil, meanwhile, continue to provide some support for robusta coffee prices.  Robusta futures on London’s NYSE LIffe have been edging since the start of the new year, with the March robusta contract settling at $1,705 a tonne on Jan. 15, up from $1,683 a tonne at the beginning of 2014.

Robusta shipments in January from Vietnam, the world’s biggest robusta producer, could fall to 100,000- to -150,000 tonnes, according to a Reuters report, citing traders in the country. In December, Vietnam expected to export 120,000 tonnes (2 million 60-kilogram bags), according to the General Statistics Office of Vietnam. January is the third month of the country’s 2013-2014 crop year.

The U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) in December forecast Vietnam’s 2013-2014 coffee output at a record 28.5 million 60-kilogram bags, up from 26.4 million bags in the previous year. This was due to higher yields attributable to favorable weather coupled with an increased harvest area. Of the 2013-2014 crop forecast, robusta is expected to account for some 27.5 million bags. FAS expects the country’s total coffee bean exports in 2013-2014 to increase by 900,000 bags to 24.5 million.

Arabica coffee prices on the ICE Futures U.S. retreated this week after last week’s rally on the back of indications of a smaller crop in Brazil, the world’s top producer. New York’s March closed last week at $1.2035 cents a pound after the contract soared to $1.226 a pound on Jan. 7, the highest for a most-active contract since Aug. 19. On Jan. 15, arabica for March delivery settled at $1.1758 a pound.

Raw sugar prices’ downtrend continued this week with the March contract on New York’s ICE Futures dropping to 15.11 cents a pound on Jan. 16, the lowest for the most active contract since late June 2010. ICE March sugar finished last week at 15.60 cents.

Apart from a brief rally above 20 cents a pound in mid-October, raw sugar prices have been heading south for the past several months. Prospects for increased production this crop year in top-growing countries such as Brazil and Thailand, coupled with massive global stocks of the sweetener, have weighed on market sentiment.

Further pressure on prices came this week with an approved plan by India to subsidize export shipments of raw sugar to help assuage burgeoning domestic supplies. According to the Indian Sugar Mills Association, India’s sugar inventories reached 8.85 million tonnes on Oct. 1, the highest in five years.

Analysts believe a test of 15 cents a pound in the next few days is likely.

Refined, or white, sugar futures prices also have edged lower since the start of the year,  with the March contract on London’s NYSE LIffe touching $413.25 a tonne on Jan. 16, the weakest point for a most-active contract since April 2009.

Cotton futures rose sharply at midweek after retreating late last week from an earlier rally, although traders were at a loss to explain the upward push. ICE March cotton gained more than $1 a pound on Jan. 15 to finish at 84.79 cents a pound.

The most-active contract closed last week at 82.59 cents, 22 cents down on the day after the USDA forecast global inventories to reach a record 97.61 million 480-pound bales by the end of the current marketing year, on Jul. 31, 2014. This latest projection was a 1.2 million upward revision on the U.S. government department’s estimate a month earlier of 96.41 million. Some market watchers had speculated that the USDA might indicate a lower-than-expected world stock figure for cotton.

The higher stocks came on the back of higher production forecasts for the U.S. and China. China will account for some 60 percent of 2013-2014 ending stocks, the USDA said its latest World Supply and Demand Estimate (Wasde) report, released Jan. 10

The USDA said its U.S. cotton estimates for 2013-2014 are revised slightly higher to reflect higher production. The government department raised its projections of U.S. production by 118,000 bales from last month to 13.19 million, due mainly to an increase for Texas. For China, the USDA upped its 2013-2014 production estimate by 1 million bales to 33 million.

Spot gold hits one-month high

Gold climbed to a one-month high early this week as investors sought the safe haven of the precious metal amid U.S. equities losses. Gold is also being supported by increased buying by China ahead of the Lunar New Year on Jan. 31.

Spot gold touched $1,254.95 an ounce on Jan. 13, its highest point in a month. Gold futures for February delivery on the Comex division of the New York Mercantile Exchange (Nymex) closed the day $4.20 an ounce up at $1,251.10, the contract’s highest close since the Dec. 11 settlement at $1,257.50 an ounce.

Among other precious metals, platinum prices are being underpinned by supply concerns. South Africa’s Association of Mineworkers and Construction Union (Amcu) said Jan. 13 its workers had voted in favor of a strike over wages at Impala Platinum (Implats), which is the world’s second largest producer of the metal. However, Amcu has yet to serve the strike notice at Implats as it awaits the go-ahead from its members at other major platinum producers — Anglo American Platinum (Amplats) and Lonmin. A simultaneous strike at all three would hit at least half of global platinum production.

Platinum for April delivery rose to finish at $1,443.90 an ounce while sister metal palladium for March delivery lost $6.05 to settle at $740 an ounce on Jan. 13. By close at midweek, April platinum had settled lower at $1,428.60 while March palladium was up $4 at $744 an ounce.

Meanwhile, U.S. oil prices climbed to their highest settlement in almost two weeks on Jan. 15 after U.S. government data showed another drop in the country’s crude inventories. The upward move came despite a bigger-than-expected build in gasoline stocks. Oil prices were also boosted by positive U.S. manufacturing data which is seen as supportive of oil demand prospects.

February light, sweet crude contract – the West  Texas Intermediate (WTI) – for February delivery on the Nymex settled $1.57 up at $94.35 a barrel on Jan. 15. Late last week, February WTI dipped to an eight-month low of $91.66 a barrel.

The U.S. Energy Information Administration (EIA) reported that the country’s commercial crude stocks dropped by 7.7 million barrels to 385.8 million barrels for the week ending Jan. 10, a significantly greater decline than the market expected. The figure represents the seventh straight week in a row of declining crude inventories and according to EIA data, has dropped by around 35.6 million barrels since the last week of November. However, motor gasoline inventories were up by 6.2 million barrels for the week ending Jan. 10, while distillate fuel stocks fell 1.0 million barrels.

Brent North Sea crude prices on London’s ICE Futures Europe exchange also added gains by midweek after dipping early in the week. Brent oil slipped after the five permanent members of the U.N. Security Council and Germany reached a deal with Iran to begin implementing the nuclear accord on Jan. 20. A provisional agreement with Iran was reached late last year.

Traders were concerned that easing sanctions with Iran as part of the accord would bring more Iranian oil onto the market. Iran produced 2.8 million barrels of crude oil in December, according to EIA data. However, oil sanctions are expected to remain in place for the time being. By midweek, February Brent crude on ICE Futures Europe settled at $106.27 a barrel, $1.17 up on the day, and slightly off last week’s finish at $106.61.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.