Tighter inventories could send sugar and cocoa prices higher, analysts

By Jane Byrne

- Last updated on GMT

Related tags: Sugar beet

The downward trend in sugar prices is likely to continue, but this recent correction in the market may be undermined by tight global supplies, a factor also likely to curb the fall in cocoa prices, according to Rabobank.

Keith Flury, senior analyst at Rabobank, told this publication that risk concerns about the 2011 sugar crops, including the Northern Hemisphere beet crop, and the Brazilian sugar cane harvest could send prices for the critical bakery ingredient upward again.

Concerns over additional import needs from the US this year due to the risk to the beet crop from flood could also reverse the sliding prices, said Rabobank in its monthly review of commodity price patterns.

US import needs

The commodity specialists note that the sugar beet plantings in the US are expected to begin now with the USDA reporting on the sowing progress for the first time next week.

But they point out that the beet harvest will not be enough to compensate for the frost‐impacted cane production.

“The USDA projects beet plantings will only increase 1 per cent to 1.19 million acres. The high risk for spring flooding along the North Dakota/Minnesota border forecast by the National Oceanic and Atmospheric Administration presents a risk to the US beet crop in the area.

If flooding is an issue, the US may once again have to come to the international market to ensure adequate supply.”

Cocoa prices

In terms of other commodity developments, industry anticipation that the Ivory Coast conflict will be resolved has “pressured” ​cocoa prices, said the Netherlands-based group.

Cocoa futures prices have fallen 19 per cent since early March, as the de facto civil war in the Ivory Coast looks to be over, with elected winner Alessande Ouattara firmly in power.

And the supply of beans stored at ports in West African cocoa growing country, nearly half a millions tonnes, is expected to reach the international market soon, commented the commodity experts, with “ships already reportedly heading towards the number one producer.”

In addition, the West African mid crop, which is picked in April and May, could begin reaching the market within the month, said the analysts.

“The better supply and outlook in the Ivory Coast have encouraged speculators to reduce their net long position by 50 per cent since 11 March. Despite the bearish turn in the market, we expect the price correction to be moderated by good commercial buying, and a projected supply deficit next season,”​ report the commodity specialists.

Declining cocoa production

And the Rabobank report notes that with the Ivory Coast unrest expected to ease up, “cocoa fundamentals can now drive price.”

Looking ahead to the next season they expect Ivorian cocoa production to fall, with a subsequent hike in prices.

“In West Africa the weather patterns in the past season were optimum for cocoa production; we do not expect this to occur a second time.

With average weather yields will fall, and as the Ivory Coast cocoa farmers have not been realising high enough returns to reinvest in plants or physical capital, the downward trend in production from the country will likely resume,”​ they concluded.

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