Sugar futures 'better bet' than cocoa or coffee

by Agrimoney.com

Sugar looks a top bet among soft commodities, given that markets have already fully priced in the prospect of easier supplies – unlike for cocoa or coffee, Commerzbank analysts said.

The German bank, in the latest of a spate of bank briefings on commodity markets, forecast that arabica coffee prices "should retreat slightly initially, and then more pronounced" if fears of frost in Brazil go unrealised and the harvest in the top producing country lives up to high expectations.

"Arabica prices at around $3 a pound are exaggerated and not sustainable," the report said.

Cocoa prices, meanwhile, have further "downside scope" as exports resume from the Ivory Coast, the main producer of the bean, following the lifting of a ban imposed by Alassane Ouattara during his – successful - fight to claim the presidency won at elections last year.

'Exaggerated correction'

However, a fall of nearly 40% in sugar prices, since hitting a 31-year high of 36.08 cents a pound in February, appears "exaggerated", given the threats remaining to world production.

Supply prospects have improved, thanks to better hopes for Thailand's output which, at 9.6m tonnes looks set to trounce the previous record, and a weak start to Brazil's 2011-12 harvest appear reflect a timing issue rather than an underlying threat.

But Commerzbank cautioned over overoptimistic estimates for 2010-11 output in India, the second-ranked sugar maker, after the Indian Sugar Mills Association clocked the country's production at 24.2m tonnes, more than 2m tonnes below some other forecasts.

And flooding earlier in the year would limit Australia's rise in output to 300,000 tonnes, taking it to 4m tonnes.

'Room for disappointment'

"The good news from the supply side should be priced in already," the report said.

"There is room for disappointment regarding crop prospects in the upcoming months. Similar to last year, prices should therefore rise in the course of the year after the decline in spring."

The bank forecast the price of New York sugar, as measured by the near-term lot, averaging 25.0 cents a pound in the July-to-September period, and 26.0 cents in the last quarter of the year.

The spot contract, currently for July delivery, stood at 22.10 cents a pound at 10:00 GMT, up 0.9% on the day.

Coffee for July was 0.4% up at 262.35 cents a pound, with July cocoa up 0.1% at $2,887 a tonne.

See the original article >>