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Arabicas touch 34-year highs, sugar up

The most significant recent movements in commodities trading have affected coffee and sugar markets most

The most significant recent movements in commodities trading have affected coffee and sugar markets most

p>The most significant recent movements in commodities trading have affected coffee and sugar markets most

Arabica coffee futures, as predicted, have touched over three-decade highs amid concerns over supplies, while sugar futures are also moving up again on worries about shortages. But with the resumption of export shipments from top producer Côte D’Ivoire, cocoa futures prices are falling away from earlier 32-year highs. Gold, meanwhile, is recording fresh all-time peaks as investors continue to pile in to the safe haven investment amid ongoing economic uncertainy.

Arabica coffee futures surged to a 34-year peak of US$3.0890 a pound on New York’s ICE U.S. in early May amid concerns of insufficient supplies and strong speculative interest. Supply concerns were prompted by record-level rainfall in Colombia, a top producer of mild arabicas, and a slowdown in sales from leading producer Brazil ahead of its off-cycle harvest when the country’s coffee trees produce lower volumes of berries.

Arabica futures have since dropped by 18 per cent, with the July contract on New York’s ICE trading at US$ 2.6120 a pound on 24 May.

However, traders and analysts warned that the fundamentals of tight supply and high demand have not changed. They believe arabica prices are set to remain high into the 2011-12 season as Brazil moves into a low-output year in its production cycle.

Rabobank, for example, is forecasting global arabica production to fall 8.6 per cent to 76.8mn tonnes in the next coffee year (1 October-30 September), from an estimated 84mn tonnes this coffee year. The bank, however, expects robusta output to rise five per cent to 57.5mn tonnes over the same period.

Having reached a three-year high of US$2,614 a tonne in mid-March, robusta coffee futures trading on LIFFE in London have since fallen to US$2,558 a tonne basis the July contract.3672126801_0acff1cc71_o

Raw sugar futures, meanwhile, having slumped to a six-month low in mid-April amid reports that global supplies would be sufficient to meet demand, in mid-May made their biggest one week gains so far this year after output plunged in Brazil, the world’s biggest sugar producer and exporter. Between mid-March and the end of April, sugar production in the country’s Center-South region fell 69 per cent to 795,000 tonnes compared with the same prior year period, according to Brazil’s sugar cane industry association, Unica. This latest data from Unica has raised supply concerns, said traders.

Raw sugar for July delivery rose 0.12 per cent to 21.45 US cents a pound on ICE Futures U.S. in New York on 13 May For the week ended 13 May, the price jumped 4.8 per cent, helping offset this year-to-date’s’ decline of 33 per cent in futures prices since the start of 2011.
On London’s LIFFE, refined sugar futures for August delivery climbed 70 US cents, or 0.1 per cent, to US$602.80 a tonne.

Côte d’Ivoire cocoa shipments resume

After hitting a 32-year high on 4 March amid the fallout from a disputed election on 28 November which had disrupted exports since late January from leading producer Côte d’Ivoire, cocoa futures are expected to drop back steeply in the coming weeks following the resumption of shipments in late May.

After the 11 April arrest of the country’s incumbent President Laurent Gbagbo, whose refusal to step down sparked the conflict, export shipments were slow to restart because of the chaos at Côte d’ivoire’s banks and ports.

The European Union in January had imposed shipping restrictions and the internationally-recognised winner of the election and now president, Alassane Ouattara, had called for a ban on exports, moves aimed at pressuring the incumbent leader Gbagbo to step down by starving him of cash.

Cocoa futures prices reached their highest since January 1979 on 4 March, with the July futures on ICE in New York touching a peak of US$3,775 a tonne. But by late May, US cocoa futures had slumped some 23 per cent, with the July delivery contract on New York’s ICE having slipped to US$2,902 a tonne by 20 May. Cocoa futures in London were also down, with the July contract on LIFFE finishing at UK£1,865 a tonne.

Singapore-headquartered Olam International Limited, one of the world's top four buyers of cocoa beans, said it expected Côte d’Ivoire to be able to ship around 150,000 tonnes of beans in May and June combined.

Poor rains hit Kenyan tea

Poor rains have taken their toll on Kenyan tea production, with output in April, the last full month for which data is available, down 12 per cent at 31.48mn from a year earlier, according to the Tea Board of Kenya (TBK). The country produced 35.86mn kg of tea in April 2010.

Production for the first four months of this year stood at 116.6mn kg, 20.9 per cent lower than in the same prior year period, TBK reported. The tea board explained the lower production is largely on account of poorly distributed rainfall across the country as a result of the La Niña weather phenomenon. It now expects output for 2011 as a whole likely to be 10 per cent lower than last year when Kenya produced 399mn kg of tea. If confirmed, the country’s tea output in 2011 will be no more than 360mn kg.
April exports rose slightly to 32.18mn kg from 31.87mn kg, according to TBK, with Pakistan the leading importer of Kenyan tea in April.

At the most recent weekly auction of teas held in the Kenyan port city of Mombasa, the average price of some top grade tea rose slightly, turning around two previous weeks of falling prices.

Best Broken Pekoe Ones (BPIs) fetched US$3.56-US$3.00 per kg at the auction held 23-24 May compared with US$3.26-US$3.08 per kg at the previous week’s sale, but still down on the prices secured four weeks earlier of US$4.08-US$3.00 per kg.

However, Best Pekoe Fanning Ones (PFIs) sold for US$3.54-US$3.02 per kg at the latest auction, down from the US$3.68-US$3.04 the previous week, but marginally improved at the top end of the US$3.52-US$3.14 per kg average prices seen a month earlier.

Meanwhile, Tanzania, which is Africa’s fourth largest tea producer, also could see a drop in output in the 12 months through to June to 32,000 tonnes compared with the earlier estimate of 35,000 tonnes, according to the country’s tea board. The Tea Board of Tanzania reported the expected decline is on account of late rains. In 2009/10, Tanzania produced 33,000 tonnes of tea and exported 28,064 tonnes of the leaves worth about $57mn, according to the tea board.
About half of Tanzanian tea exports are sold through the weekly auction in Mombasa.

Burundi's tea export revenues rose 22 per cent in April compared with the same month last year, partly due to higher sales volumes and despite lower average prices, according to the state-run Burundi Tea Board. The tea board reported it received $1.37mn in April from the export of 531,163 kg of tea, up from $1.12mn earned the same period in 2010 from sales of 428,061 kg.

The tea board attributed the sales volume increase to the collection of high quality tea leaves. However, the average export price per kg declined to US$2.58 in April from US$2.62 in the same month in 2010.

Burundi exports 80 per cent of its tea through the weekly auction held in Mombasa. The tea board estimates 2011 production at 9,000 tonnes, up from 8,016 tonnes in the previous season, on account of an expected increase in fertilizer use. It projects overall earnings from tea for the year at $13.4mn.

Gold still posting records

Gold has continued to post new record highs in recent weeks, most recently hitting an all-time peak of US$1,575.79 a troy ounce in early May. At press time, the spot metal was at US$1,528.40 but was expected shortly to record another high on account of deepening concerns about a debt default by Greece amid a worsening Euro-zone debt. The gold price is now almost 50 per cent higher than it was 18 months ago.

The precious metal is seen as a safe haven investment in times of economic woe and not surprisingly, demand for gold as an investment has been strong this year, although it is off the peaks seen in 2010. The World Gold Council recently estimated a 26 per cent increase in investment demand for gold to 310.5 tonnes in the first quarter of 2011 compared with the same three-month period last year, but this was five per cent down on demand in the fourth quarter of 2010.
Demand for gold for other uses such as jewellery and technology has been relatively flat, with the exception of demand from the dental sector, which has fallen as a result of higher prices, the World Gold Council reported.

Gains in gold have lifted another precious metal, platinum to a high of $1,784 an ounce by 27 May, but activity in the platinum physical market has yet to pick up in Japan after the devastating earthquake, tsunami and nuclear disaster in that country in March.
Some industry sources are warning that reduced car production in Japan as a result of the devastating events there could reduce the country’s demand for platinum this year to its lowest level in 28 years. World platinum use for auto-catalysts accounts for 40 per cent of demand, according to UK-based Johnson Matthey. In Japan, platinum use in that sector accounts for 47 per cent of demand.

Consequently, the global platinum surplus may rise sharply in 2011, and may curb the advance in platinum prices which have climbed 18 per cent in the past year. Prices for sister metal, palladium, which is also used for pollution-control devices in cars, which have soared over 70 per cent in the past 12 months, could also be hit.

Lynda Davies

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