Brazil outlook bullish for OJ - not coffee, sugar

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 grower.

The research centre highlighted estimates from Datagro that Brazil's cane output next season may grow by 20m tonnes, half the growth seen in 2013-14.

"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.

'Positive development'

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.

'High production'

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.

Dryness in Brazil threatens sugar price weakness
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