LONDON, Feb 23 (Reuters) - Coffee inventories in producing countries have reached a record low, the International Coffee Organisation (ICO) said on Wednesday.
"Today they are at their lowest level in history," said Jose Sette, the executive director of the ICO, adding that coffee stocks in consuming countries would last for another three to four months of consumption.
He said coffee inventories have been steadily depleted for the past few years as bean supply has lagged demand, with demand in emerging markets growing at more than 4 percent a year.
Source: (Reporting by Anna Yukhananov; editing by Alison Birrane) ((anna.yukhananov@thomsonreuters.com; +44 207 542 1450; Reuters Messaging: anna.yukhananov.thomsonreuters.com@reuters.net))
* Extension of Ivorian export ban propelled cocoa to peak
* Arabicas consolidate near highest level in over 30 years
* Sugar futures fall to reconnect with physical demand
ICE cocoa hit a fresh 32-year high on Wednesday on renewed concerns over supplies after the
Ivory Coast's export ban was extended, while arabica coffee fell a day after peaking at its highest level in at least 30 years.
Sugar futures fell below recent three-decade highs as the market sought to reconnect with physical demand.
ICE May cocoa futures <CCK1> <CCc2> traded up $50, or 1.4 percent, to reach $3,636 a tonne at 1653 GMT as the extension of Ivory Coast's export ban increased uncertainty about future world cocoa supplies.
Liffe May cocoa <LCCK1> was up 19 pounds or 0.8 percent to 2,357 pounds ($3,817) per tonne, having earlier touched a seven-month peak of 2,361 pounds per tonne.
"Until now the trade have seemed reasonably relaxed, but this (Ivory Coast ban) doesn't look like being solved easily and uncertainty is what spooks markets," a UK-based analyst said.
"Now it looks like the ban has been extended, so the farmers and the exporters must be getting distressed as well as those who have bought the cocoa for manufacturing and processing," the
analyst said.
Gunfire and explosions shook an area of Abidjan that supports Ivorian presidential claimant Alassane Ouattara on
Tuesday, and at least three soldiers died in clashes with protesters calling on his rival to step down.
Declared purchases by private cocoa buyers to Ghana's industry regulator, Cocobod, reached 693,074 tonnes by Feb. 10, up 40.42 percent by the same point in the previous season, industry sources said on Tuesday. [ID:nLDE71L2GB]
New York cocoa <CCc2> will extend gains substantially to $3,746 per tonne, based on its wave pattern and a Fibonacci projection analysis, according to Reuters analyst Wang Tao. ]
COFFEE, SUGAR
Arabica prices eased, after trading at the highest level in at least 30 years on Tuesday, as a shortage of high quality beans continued to support prices.
"Any end-users who haven't covered by now will be in distress," the UK-based analyst said. Arabica prices have more than doubled since June 2010, underpinned by lower-than-expected output in high quality arabica producer Colombia for three consecutive crops.
"The focus still seems to be on the lack of tenderable material for New York," the analyst said.
ICE May arabica coffee <LRCK1> traded down 0.5 cent or 0.2 percent at $2.7385 per lb at 1700 GMT.
Liffe May robusta coffee <LRCK1> traded up $2 at $2,384 per tonne in moderate volume of 7,475 lots.
Robusta coffee prices in Vietnam stayed near record highs on Wednesday, with farmers continuing to hold on to remaining thin stocks on hopes of further gains, traders said. [ID:nHAN125162]
New York coffee <KCc2> will rise to $2.82 per lb as the uptrend is intact, even following a retracement to $2.7035 on the hourly chart, Reuters analyst Wang Tao said. [ID:nL3E7DN0NS]
Sugar futures prices fell, trading at below 30-year highs due to tight global supplies, as the market sought to reconnect with physical demand.
ICE March raw sugar futures <SBH1> were down 1.01 cent or 3.3 percent, at 29.95 cents a lb at 1701 GMT. London May white sugar <LSUK1> was down $23.0 or 3.20 percent at $696.0 per tonne in slim volume of 3,950 lots.
"The sugar fundamental situation still seems to favour the bulls, and we continue to see dips as buy opportunities," said Thomas Kujawa of broker Sucden Financial.
Indonesian state plantation PT Perkebunan Nusantara X failed to secure white sugar for the third time in a tender, seeking to buy 43,400 tonnes, said a tender official on Wednesday.
While the firm said the tender was annulled when a supplier failed to meet its requirements, traders said that buyers were hoping for lower prices.
"I think we are seeing demand deferral rather than demand destruction at this stage, although that may change if prices return to the highs and beyond," the UK-based analyst said.
Cocoa is building bullish technical energy highlighted by an ascending wedge formation that reflects a coiled spring preparing to release an explosive move. The MACD recently has triggered a buy signal, increasing the odds of a breakout over the next several months (see “Hot chocolate”).
The breakout, should it occur, will be explosive, but the technicals are not the only reason to be bullish cocoa. The long-term structural supply/demand imbalances that have created a series of recent deficits are not going away anytime soon. In 2010, Mother Nature was unusually kind but, because of the aging tree population in the Ivory Coast and the depleted soil content in Ghana, such favorable weather will not produce record crops and likely will produce a global deficit in 2011.
Recently, many high profile cocoa analysts have downgraded global cocoa production as good weather was overplayed and the deleterious effects of decades of lack of investment in the cocoa industry were underemphasized in their analyses, leading to overly optimistic global production expectations.
The International Cocoa Organization (ICCO) recently has increased deficit expectations for the 2009-2010 marketing season. The likely probability for 2011 is that weather becomes normal to adverse and sets global cocoa production back into a major tailspin, leading to shortages of high quality cocoa. With demand for this kind of cocoa strong and demand growth expected apace, record highs are a matter of when, not if.
We have seen the cocoa market move well above $3,000 per ton over the last several years without generating the kinds of investments that are desperately needed to rejuvenate long-term global production. Additionally, there has been very little demand degradation during these spikes. It will take much higher prices to accomplish a more balanced cocoa trade, especially against the increasingly economically competitive alternative markets for growers, such as rubber, palm oil and coffee.
Is it any wonder that processors and merchants have loaded up on cocoa futures to hedge against a likely price spike in future years? The people that know more about the cocoa trade than anyone else see much higher prices on the horizon.
Commercial operators tend to hold near-record long positions at major bottoms as they rush in to protect upside price risk. If you look at the times that commercial net longs have risen to the levels we have today, they have been followed by bull moves. It has been profitable for investors to follow the commercial net positions and buy when they have become historically long.
With Intercontinental Exchange US (ICE) certified warehouse cocoa stocks being drawn down over the last six months to some of the lowest levels seen since 2009, and with near record cash premium differentials against futures, the fundamentals remain very bullish. Add that to the bullish technical and commercial signals, and cocoa can make an historic move.
Another piece to consider when analyzing potentially major turning points is relative value. For cocoa, two of the most important relative value measures — the cocoa/CCI (Continuous Commodity Index) price ratio and the cocoa/sugar price ratio — are flashing major long-term buy signals. Both measures are at some of the lowest levels seen over the last 40 years, and low levels typically have preceded major bull market moves.
Cocoa has a history of being a rogue commodity with, at times, very little correlation to the rest of the commodity complex. This is important as we may be facing an extended commodity correction, but the cocoa market could still see a major bull run.
The initial margin requirement for cocoa futures is $1,610 per contract, making it one of the more affordable commodities to trade. Front-month cocoa closed at $2,758 on Dec. 1. A trader could get long in that area with a protective stop placed at the Sept. 13 low around $2,600, proving a better than 3:1 risk/reward ratio. A tighter stop can be utilized following the bottom trendline which, as long as it holds, supports a long position. Look for opportunities to buy March 2011 cocoa on any correction that takes prices under $2,800 for an eventual move up to the $3,400/ton area in 2011.
With the technicals, fundamentals, commercials and relative value measures all aligning with historical bullish signals, investors should take notice. And given cocoa’s history of independence, it could be the one commodity to buy in the first part of 2011.
Colombia, the second-largest arabica coffee-bean producer, said flowering in recent weeks in major growing areas will ensure a “very good” year-end harvest.
Year-end production will rebound in the most important provinces of Antioquia, Quindio, Caldas and Risaralda, ensuring the annual harvest will surpass last year’s 8.9 million bags, Colombia’s National Federation of Coffee Growers Chief Executive Officer Luis Genaro Munoz said in an interview in Bogota.
“The production is there,” he said yesterday. “I frankly didn’t sleep until Friday. Friday and Saturday the flowering was completed” in the central growing areas, he said.
Above-average rainfall hurt coffee trees last year, prompting a decline in exports and a surge in prices. Coffee doubled in the past year, making it the second-best performer among 22 commodities tracked by the Bloomberg CRR Futures List.
Arabica coffee for May delivery gained 1.35 cents, or 0.5 percent, to settle at $2.7435 a pound at 2 p.m. on ICE Futures U.S. in New York. The price earlier declined as much as 2.65 cents to $2.7035.
Production in Huila, Colombia’s second-largest growing province after Antioquia, will rise in the first six months of the year, Munoz said. Huila, which produces beans brewed by companies including Starbucks Corp., and other nearby growing areas had less severe rainfall than areas farther north, where precipitation in some cases was four times average last year, Munoz said.
Stalled Recovery
Damage in those areas to flowering last year will cause a recovery in the nationwide crop to stall in the first half, he said.
Colombia aims to increase production as it accelerates plans this year to sow more disease-resistant coffee varieties, Munoz said. A disease caused by fungus, known locally as roya, that attacks plants probably peaked last year, Munoz said.
Last year, exports slid by 78,000 bags to 7.82 million bags. Output in 2010 fell short of the 9.5 million bags forecast in October by the federation. A bag weighs 60 kilograms (132 pounds). Brazil is the largest producer of arabica beans.
Cocoa exporters in Ivory Coast, the world’s biggest producer of the beans, have been ordered to suspend all cocoa and coffee shipments for a month, according to the government of president-elect Alassane Ouattara.
The halt in exports runs from tomorrow to Feb. 23, according to an e-mailed statement from the office of Prime Minister Guillaume Soro and signed by Ouattara’s Justice Minister Jeannot Ahoussou. Cocoa rose to an 11-month high in New York on Jan. 21 on speculation that steps to remove the incumbent president will disrupt exports.
The export ban is meant to cut off the rival government of incumbent President Laurent Gbagbo from export revenues of the beans, Tohe said. Ouattara’s government “‘does not have control over exports revenues right now,” he said. “They go straight to the National Coffee and Cocoa Management Committee, which is in the hands of Gbagbo,” he said.
While the United Nations, the U.S. and African leaders recognize Ouattara as the winner of the Nov. 28 elections, Gbagbo has refused to step down, alleging voting fraud in northern states.
Cocoa Production
Ivory Coast’s cocoa production accounts for a third of global production, and is forecast to be 1.9 percent larger than a year ago, according to Macquarie Group Ltd. Shipments by farmers to the country’s ports from the latest harvest are about 2 percent below last season, the bank said on Jan. 19.
