Associated British Foods forecast coming out on the right side of a shake-down in farm commodity prices, forecasting values of the sugar it produces will remain firm, but of pressures subsiding in markets for crops its buys.

The grocer-to-clothes retailer said that agricultural commodity costs – whose elevated levels had been felt through higher prices of items from wheat for milling to vegetable oils for its ingredients operations – "appear to be subsiding", although there might be some delay in this reviving margins.

"The effect of forward purchasing means that the benefit to the group will not be felt immediately," and in the case of clothes retailer Primark, which has suffered from high cotton prices, "not until the beginning of the new calendar year", ABF chairman Charles Sinclair said.

The comments followed the close of cotton prices at a 14-month low of 96.76 cents a pound on Monday, although the fibre recovered some ground on Tuesday, ending up 0.9% at 97.62 cents a pound.

"The deteriorating European economy poses a significant headwind to global cotton demand," Luke Mathews at Commonwealth Bank of Australia said.

'Improved sugar pricing'

But UK-based ABF, which employs 102,000 people in 46 countries, said that its sugar division, which produces sugar in countries including China, South Africa, Spain and the UK, would "benefit" from "improved sugar pricing... in the coming year".

Despite expectations strong northern hemisphere beet harvests, sugar prices in the European Union, at least, would be supported by the shortfall evident in emerging tariff-free imports last season.

"EU stocks are forecast to remain low and prices to remain firm in the coming year," ABF said.

Mr Sinclair forecast ABF showing growth in both sales and underlying operating profits in its newly-started 2011-12 financial year, "with the profit improvement weighted towards the second half", as waning farm commodity price pressures feed through.

In the City, Panmure Gordon analyst Graham Jones said that sugar was likely to prove "the key theme" for ABF in the new financial year, adding that he too considered the EU price outlook as "positive".

Mr Jones lifted to £430m his forecast for ABF sugar profits in 2011-12.

'Excellent Frontier'

The division achieved a 31% jump to £315m in underlying operating profits in the year to mid-September, on revenues up 9.9% to £2.13bn, boosted by a "significant increase" in output at its Chinese beet operations, besides higher world prices.

ABF also highlighted a 21% rise to a record £40m in underlying profits at its agriculture division, which sells animal feed, offers agronomy advice and originates crops, besides including the Frontier grain trading joint venture with Cargill.

Frontier achieved an "excellent performance", as "firm wheat prices and high volatility throughout the year created exceptional grain trading opportunities with record volumes purchased and traded".

The performance put ABF among companies, such as Corn Products International, to navigate successfully market volatility, with the likes of Bunge and Cargill acknowledging setbacks.

Group earnings fell 10.9% at £679m for the year, although adjusted for one-off effects, they rose 1.4%. Revenues grew 8.8% to £11.1bn.

The earnings, equivalent to 74.0p per share, came in ahead of analysts' expectations of a 72.4p-per-share result, helping ABF shares close up 1.4% at 1128p in London.