Brazilian dynamics bode well for orange juice prices, but
look unlikely to revive coffee and sugar markets, Cepea said, casting doubts on
downbeat ideas for this year's arabica coffee harvest.
Orange juice prices face a "positive scenario in 2014" given
a decline in supplies in Brazil, the top producer, where inventories are
expected by analysts at industry group CitrusBR to fall 38% to 476,600 tonnes
in the year to June this year, and may remain under pressure.
The latest orange tree flowering period, in July and August,
had shown "irregular" blossoming, while low prices continue to encourage
producers to rip up groves in favour of other crops, Cepea said.
"Another aspect that might affect the volume of orange
produced in the upcoming crop is the lower investment level in agricultural
practices," said the research centre, which is linked to Sao Paulo University.
Although the market would gain a better grip on Brazilian
production prospects as producers continue their first "derricas" crop sampling
exercise, prices looked likely to remain underpinned.
"Initially, due to higher demand and more limited supply,
prices paid by processors might increase comparing to the current crop, in an
attempt to keep the orange juice volume in stocks comfortable."
Sugar vs ethanol
However, for sugar, Cepea forecast prices, which are near
three-year lows on New York's futures market, staying "stable", as an increase
in Brazilian sugar cane production is offset by a growing willingness by mills
to turn the crop into ethanol rather than sweeteners.
In fact, the lower prices are likely to result in only a "modest
increase" in Brazilian output of sugar cane, of which it is the world's top
The research centre highlighted estimates from Datagro that
Brazil's cane output next season may grow by 20m tonnes, half the growth seen
"Low favourable perspectives for the sugarcane sector in
Brazil and in the world, and for the Brazilian economy, might result in a
modest increase of the domestic sugarcane production," Cepea said.
"Moreover, it is forecast that the extra cane planted in
Brazil tends to be almost 100% absorbed by ethanol production," rather than
being used to make sugar.
And for coffee, Cepea warned that prices may stay "low" this
year, depressed by strong output in many major producing countries, including
Brazil, the biggest grower.
In fact, while many commentators have cautioned over the
2014 Brazilian harvest, with the official Conab bureau two weeks ago unveiling
a downbeat production estimate, Cepea said its research revealed more
optimistic output prospects.
"[Crop] development has been positive in almost all regions
surveyed by Cepea, due to favourable weather conditions," the group said.
While low prices - with New York arabica coffee futures in
November hitting their lowest since May 2007 – have prompted a reduction in good
agronomic practice, encouraging farmers for instance to scrimp on fertilizers,
this may not impact output yet.
"This scenario might be more concerning in next season, in
2015-16," Cepea said, foreseeing that crops might for 2014-15 be able to rely
on stored nutrients.
Meanwhile, for Brazilian of output coffee, Cepea research
indicated that output in Espirito Santo, the key producing state for the bean, "may
be high again given that crops have registered a good development and
agricultural practices are satisfactory.
"The good volume of rains in the state in December has favoured
grain filling in almost all crops."
Nonetheless, robusta coffee for March delivery stood 0.7%
higher at $1,732 a tonne in lunchtime deals in London.
In New York, arabica beans for March were 0.9% higher at
118.25 cents a pound – up some 17% from their lows two months ago, in a rally encouraged
by downbeat estimates from the likes of Conab and trader Volcafe of Brazil's
production prospects this year.