World sugar output is to exceed consumption for a fourth
successive year, and arabica coffee report its second successive surplus
despite an "off" year in Brazil, Macquarie said, sounding a bearish note on
The bank said that price falls in both crops over the past
week to their lowest in more than two years was "justified" given that "both
markets are in a structural surplus", and with weather boding well for output
in major exporting countries, notably Brazil.
In arabica coffee, "we will be in for yet another world
surplus this season", despite it being a weak-output season in Brazil, which
sees alternating years of higher and lower output, Macquarie analyst Kona Haque
Indeed, with rains alleviating worrying dryness in some parts
of Minas Gerais and Espirito Santo - the top two coffee growing states in
Brazil, itself the biggest arabica-producing country – speculators may prove
unwilling to ditch their profitable net short position on the bean, a process
some growers have been hoping would lift futures prices.
"Having happily sat on these shorts for much of 2012, will they
continue to sit on it into 2013 as well?
"Unless fundamentals start to tighten, this is, once again,
a real possibility," Ms Haque said, as New York futures hit a fresh two-year
In raw sugar futures, Macquarie said it had turned more pessimistic
on the price outlook following a strong finish to the 2012 crushing season,
which belied the group's earlier fears over crop condition and mill finances.
"The strong recovery in Brazil's crop since mid-2012 has
firmly put to rest any such concerns," Ms Haque said.
Indeed, the bank forecast the world in 2013 seeing its
fourth successive season of production surplus, on an October-to-September
marketing year basis, a run which will allow stocks to rebuild by 23m tonnes
from the 2009-10 low which fuelled a rise in New York futures above 30 cents a
Indeed, the stocks-to-use ratio, a much-watched measure of
market tightness and therefore of the urgency to pay up to secure supplies, will
recover to 36.2% from 23.7% over the period.
'Prices should fall'
Macquarie's outlook reflects a forecast of a rebound in cane
production in Brazil's key Centre South region to "at least" 580m tonnes, on an
April-to-March marketing year basis, a record, and up from 533m tonnes in
And sugar output is seen rising in 2013-14 (October-to-September)
in other major producing countries too, including Europe and Thailand, although
India's production may slip to 23.0m tonnes, thanks to "depleted water reserves"
in southern states.
"Prices should fall accordingly to 17.5 cents a pound by the
April-to-June quarter of 2013, to encourage producers to store their sugar,
while ensuring consumers boost their demand," Ms Haque said.
New York raw sugar for March stood 0.3% lower at 18.18 cents
a pound as of 08:20 local time (13:20 UK time), while the May contract was 0.6%
down at 18.09 cents a pound.
New York arabica coffee for May was 0.7% lower at 140.50
cents a pound, having earlier touched 140.35 cents a pound, the lowest for a nearest-but-one
contract since June 2010.