Reversals in prices of cotton, which fell the exchange limit, and sugar on Monday are a taste of things to come, given the ability of India to fill needs of both crops, Barclays Capital warned.
Both crops have defied the reversal in grains, with July cotton closing higher every day last week to gain nearly 14% in New York, where sugar added more than 4%.
However, such strength looks unlikely to last given favourable monsoon outlooks for India, the biggest producer of both crops.
"The recent pick-up in India's monsoon rains, coupled with a surge in plantings, bodes well for production prospects," said BarCap analyst Sudakshina Unnikrishnan, who correctly called the run-up in cotton prices, which hit a record in February.
Furthermore, data from the Indian government, which earlier this month added 1m bales to its cotton export quota of 5.5m bales, had shown farmers having a "strong preference" for planting the fibre.
'Prices to ease'
For sugar too, whose price rise has been accompanied by a rebound in speculative interest, Indian acreage is expected to expand year on year, a revival which helped persuade the government last week to permit a further 500,000 tonnes of exports of the sweetener.
"With India moving further into the export side of the equation and the global market moving further into a surplus, we see significant gains in sugar prices through the second half of 2011 as being capped," Ms Unnikrishnan said.
Many observers have forecast a return by sugar in 2011-12 to a large production surplus, estimated on Friday at 7.8m tonnes by ABN Amro.
"Despite the recent move up, we continue to expect front-month prices for both cotton and sugar to ease through the second half of this year on higher supply prospects," Ms Unnikrishnan said.
Chart signal?
The comments came as prices of both commodities eased on Monday, on a decline blamed in part on broader farm commodity market weakness, with grains suffering another sell-off, which sent corn and wheat down a further 3% in Chicago.
However, cotton's slide was also attributed to a cut from 12% to 6% in Chinese import duties on some cotton products, a move which sent prices on the Zhengzhou exchange down 4.6% for the January lot, which hit a contract low of 22,200 remninbi a tonne at one stage.
Meanwhile, New York sugar fell 0.2% to 27.35 cents a pound for the July contract, which expires on Thursday, while the second-in October lot dropped 1.9% to 25.50 cents a pound, with a potential chart sell sign not helping.
"It may be the case that the inability of the October contract to breach a double top in the charts at 26.31 cents a pound causes a rethink by the speculative community eventually, especially if this level remains inviolate at the July expiry," Thomas Kujawa at Sucden Financial said.
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