Uncertainties over Brazil’s arabica coffee production is expected to keep prices firm next year. But after a stellar performance for much of 2014, cocoa futures prices are retreating as the market is seen by some analysts and market watchers to be shifting into surplus. It was another week of decline on oil markets, with Brent and WTI now trading at their weakest in more than five years
Arabica futures dipped to their lowest level since September this week as rains in top producing country Brazil were seen as positive for the development of the 2015-2016 (Oct. 1-Sept. 30) crop. Severe drought conditions early this calendar year damaged coffee trees in the main growing regions in the centre and south of the country and impacted this season’s output.
There are worries that the development of the next crop will also be affected and any rains are seen easing the pressure on the coffee trees. Many believe, however, the drought already has inflicted irreversible damage on 2015-2016 crop.
Arabica coffee for March delivery on New York’s ICE Futures U.S. exchange dropped to its lowest level since September on Dec. 4, touching a low of $1.810 a pound, before settling at $1.824, down 1.20 cents on the day. ICE March arabica had finished last week at $1.874 a pound.
The worries about Brazilian arabica coffee output drove ICE coffee futures to 26-month highs of $2.157 a pound in April, a level that was approached once again in September. Furthermore, the tighter supply situation and declining stocks are expected to keep prices elevated throughout 2015.
Brazilian production will remain the key price driver through 2015, and many uncertainties remain regarding the potential for the next crop, Rabobank said in its recently published ‘Outlook 2015: Rebalancing after finding the lows’ report.
“In our view, there is little room for the 2015 crop to surprise to the upside. Coffee prices are expected to remain elevated and volatile through 2015, supported by a tighter year-over-year arabica supply situation and a decline in stocks,” the bank said.
Based on the midpoint of a possible Brazilian crop range in 2015 at 45 million 60-kg bags and consequently a combined deficit of 5.1 million bags of coffee (both arabica and robusta), the bank sees average ICE arabica futures prices averaging 195 cents a pound in the first quarter of 2015, up from 190 cents in the fourth quarter of this year, and moving up to average 200 cents a pound in the second quarter of next year.
However, the bank warned that if adverse weather were to persist or intensify in Brazil, the supply situation could become “truly critical”, driving prices high enough to curb demand.
Unlike the arabica market, the robusta coffee market is in balance and, according to Rabobank, is expected to see a modest 2.6 percent growth in 2014-2015. Brazilian robusta-growing areas were hardly affected by the drought and top producer, Vietnam, is heading for another bumper crop this season.
January robusta coffee on the London-based ICE Futures Europe exchange settled $3 down at $2,048 a tonne on Dec. 4 and $26 below last week’s close at $2,074.
Cocoa set to remain under pressure
The prospects of good output in the main harvests in the coming weeks amid favourable weather in top cocoa producing countries, Côte d’Ivoire and Ghana, continues to weigh on cocoa prices. ICE March cocoa on Dec. 4 settled at $2,865 a tonne while cocoa for delivery in the same month on London’s ICE Futures Europe finished at £1,905 a tonne. Prices have climbed sharply this year, underpinned by industry buying and expectations of another year of global deficit. In September, worries that the Ebola epidemic would spread to Côte d’Ivoire and Ghana and disrupt cocoa supplies from those countries pushed cocoa to a 3⅟2-year high with the second-position contract on ICE hitting $3,399 a tonne. In London, the most-active contract touched £2,140 a tonne.
But cocoa prices have been retreating in recent weeks as the market is seen by some analysts and market watchers to be shifting into surplus, and consequently they expect prices to remain under pressure in 2015. However, as reported here last week, some market watchers are forecasting a global supply/demand deficit in the 2014-2015 (Oct. 1-Sept. 30) cocoa season, citing smaller-than-last season main crops in the two West African countries.
Rabobank analysts are among those expecting cocoa prices to remain under pressure as the world cocoa supply/demand balance shifts into a surplus – of some 110,000 tonnes during 2014-2015 (Oct. 1-Sept. 30), according to the bank’s projections, from “a neutral balance” of 11,000 tonnes in 2013-2014.
“The demand outlook is relatively weak, with grindings expected to increase by a mere 1 percent to 4.3 million tonnes, up from 4.26 million tonnes in 2013-2014,” the bank said in its ‘Outlook 2015: Rebalancing after finding the lows’ report, citing declining European grinding as the main factor.
Barring the Ebola epidemic interrupting production and trade flows of West African cocoa beans and products, the bank sees ICE cocoa futures easing from an average of $2,800 a tonne in the first quarter of 2015 to $2,700 a tonne in the fourth quarter.
The International Cocoa Organization (ICCO) is forecasting a global cocoa supply surplus for the 2013-2014 season (Oct. 1-Sept. 30) of 53,000 tonnes, a recent upward revision from its previous surplus estimate of 40,000 tonnes. A larger-than-previously expected mid crop in top grower Côte d’Ivoire and a temporão crop (forecrop) in Brazil contributed to the upward revision, according to ICCO’s Quarterly Bulletin of Statistics published on Nov. 28.
Côte d’Ivoire’s 2013-2014 production was raised 11,000 tonnes to 1.741 million tonnes, reflecting a 20 percent increase on the prior season. Second biggest producer Ghana is expected to see a 7.4 percent rise in output to 896,917 tonnes for 2013-2014, although the output figure reflects a downward revision on ICCOs’ previous estimate.
The global supply deficit in 2013-2014 compares with a supply shortfall of 222,000 tonnes in the previous cocoa year, according to the intergovernmental organisation’s data.
ICCO revised slightly upwards its estimate of global cocoa grindings, taken as an indication of cocoa demand, for 2013-2014. It now sees world grindings increase 3.4 percent year-on-year to 4.268 million tonnes up from the previous estimate of 4.262 million tonnes.
According to ICCO’s report, Côte d’Ivoire is set to become the world’s largest cocoa grinder following the start-up in the second quarter of 2014 of the Olam cocoa processing plant in San Pedro, a key cocoa-shipping port in the country. The country’s cocoa grinding increased 10 percent in the 2013-2014 cocoa year to 520,000 tonnes, second in volume only to The Netherlands which processed 530,000 tonnes, ICCO said.
The volume of cocoa processed in Africa rose 8 percent to 860,000 tonnes in 2013-2014, reflecting an increasing trend for more beans to be processed in the countries where they are grown. According to the ICCO report, total ‘origin’ grindings increased almost 6 percent in 2013-2014 and now account for 45 percent of global cocoa processing.
ICCO in a separate statement has responded to numerous media reports identifying potential deficits in the supply of cocoa in years to come, possibly reaching 1 million tonnes in 2020. The intergovernmental organisation said its projections “in no way bear out this fear, which it finds to be overstated in the extreme”.
“As far as the ICCO’s current projections are concerned, there is no immediate cause for concern about the supply of cocoa for the next five years, ” the ICCO statement said. “There has been a tight relationship between supply and demand over the years and, while our projections show that supply deficits are likely to occur during the next several years, stocks of cocoa beans should cushion this development before production growth accelerates.”
Raw sugar dips to 2⅟2-month
Raw sugar futures traded lower this week, touching a 2⅟2-month low on Dec. 3 amid plunging crude oil prices, a soft Brazilian real against the U.S. dollar and plentiful nearby supplies .
Raw sugar for March delivery on ICE Futures U.S. dipped to 15.07 cents a pound on Dec. 3, its weakest since late September, before settling 0.15 cents down on the day at 15.09 cents. The following day ICE March sugar was able to trim losses to finish 0.12 cents up at 15.21 cents a pound.
March white, or refined, sugar futures in London were also lower at midweek, finishing at $390.30 a tonne, $4.10 down on the day and $16.60 lower since last week’s close at $406.90 a tonne.
Weak crude oil prices are eroding the competitiveness and thus the incentive to divert cane to ethanol bio production in top grower Brazil, thus making it more attractive for the country’s cane millers to produce sugar rather than ethanol. However, with this season’s cane crush in the country’s main cane-producing region, the Center-South, almost finished, plummeting crude prices will have little impact on this season’s sugar production in Brazil, analysts say.
However, as the global supply/demand balance in sugar markets looks set to shift towards the first deficit in five seasons in 2015, ICE sugar futures are expected to move higher.
Another week of decline on oil markets
Crude oil prices continue to tumble with Brent and the U.S. benchmark West Texas Intermediate (WTI) now trading at their weakest levels in more than five years. Last week, crude prices nose-dived after the Organization of Petroleum Exporting Countries (OPEC) on Nov. 27 decided to keep its collective production target unchanged at 30 million barrels a day, despite a global oversupply of crude and plummeting prices.
Late this week, reports of cuts to official monthly selling prices by Saudi Arabia was taken as a further sign that the producer, widely speculated to be the main driver behind keeping the OPEC output target unchanged, is pushing to maintain its market share.
Brent for March delivery on the London-based ICE Futures Europe exchange plunged to a low of 68.81 a barrel on Dec. 4 before trimming losses to finish at 69.64. This marks a fall of close to 14 percent in value in less than two weeks from $80.36 a barrel at settlement on Nov. 21.
WTI for March on the New York Mercantile exchange (Nymex) hit a low of $66.10 a barrel on Dec. 4 before settling at $66.81, a 13 percent drop since Nov. 21.
Crude oil prices have lost around 40 percent of their value since June.
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