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Abares lifts hopes for sugar futures, but cuts its cotton price forecast

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Abares raised its forecast for sugar prices – ditching expectations of them setting a 10-year low – but downgraded hopes for cotton values, citing improved expectations for world output.


The official Australian commodities bureau raised by 1.0 cent to 14.0 cents a pound its forecast for the average price of spot New York raw sugar prices in 2017-18, on an October-to-September basis.


At that level, prices would still be down 19.1% year on year, but set a three-year low, rather than, as Abares had previously forecast, proving the lowest since the 11.7 cents a pound reported for 2007-08.


The forecast reflected a downgrade of to 75.7m tonnes in the forecast for world sugar inventories at the close of 2017-18, a rise of 4.5m tonnes year on year, but 700,000 tonnes below the previous estimate.


Dryness and storm damage


Although Abares raised its forecast for world production, the upgrade was curtailed by a 100,000-tonne cut, to 4.70m tonnes, in hopes for domestic output.


The bureau doubled to 10% the forecast decline in Australia’s cane crush, “due to a combination of dry conditions in southern Queensland and damage caused by Tropical Cyclone Debbie [in March] to cane producing regions in Queensland”.


The reduced crush was offset in part by an improvement in the estimate for sugar levels in cane processed.


Meanwhile, world sugar consumption was seen rising by some 5m tonnes this season, to 186m tonnes, compared with a previous estimate of 3m-tonne growth, with Abares citing population and income growth in countries such as China, India and Russia, besides weaker values of the sweetener.


“Relatively low sugar prices compared with those for alternative sweeteners such as high-fructose corn syrup and isoglucose are expected to encourage sugar consumption.”


Cotton output upgrades


However, for cotton, Abares lowered its forecast for prices in 2017-18, on an August-to-July basis, by 2.0 cents a pound to 78.0 cents a pound as measured by the Cotlook A index, citing “larger than anticipated increases in production from Australia, Brazil, China and India”.


The bureau, which last week raised its forecast for domestic output by 12,000 tonnes to 968,000 tonnes, lifted its forecast for Chinese output by 200,000 tonnes to 5.5m tonnes, citing a better-than-expected yield.


“Lint yields are estimated to have averaged a record 1.8 tonnes per hectare as a result of well-distributed rains.”


The estimate for Indian output was raised by 300,000 tonnes to 6.6m tonnes, with Abares noting “well distributed monsoon rains” and higher domestic prices which had encouraged sowings.


‘Strong demand’


The upgrades fed through into an increase of 1.4m tonnes, to 26.6m tonnes, in Abares’ estimate for world cotton output in 2017-18.


While the forecast for consumption was raised too - by 300,000 tonnes to 25.7m tonnes, against a backdrop of “strong demand for raw cotton in Bangladesh, China, India and Vietnam, driven by… rapid expansion in textile and garment industries – the revisions put a world output surplus on the cards.


Indeed, stocks were not see rising year on year by 900,000 tonnes to 20.4m tonnes, rather than showing the small decline previously expected.


Abares vs ICAC


Abares’ forecast of the Cotlook A index of physical values averaging 78.0 cents a pound this season is more generous than that of the International Cotton Advisory Committee, which sees it at 72.0 cents a pound.


The ICAC sees global cotton stocks ending the season at 19.2m tonnes, below the Abares forecast, although key in pricing metrics are the estimates given to inventories in China which, being unavailable to the world market, are viewed as less important for values.


The Cotlook A index on Monday stood at 84.20 cents a pound, down 0.50 cents a pound on the day.

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