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Sugar, Cocoa, Coffee May Fall on Supply Response, Barclays Says

Sugar, cocoa and coffee may extend declines as farmers increased production to take advantage of higher prices, according to Barclays Capital.

Sugar climbed to a 30-year high of 36.08 cents a pound on Feb. 2, while coffee reached a 14-year high of $3.089 a pound on May 3 as demand outstripped supplies. Cocoa rose to the $3,775 on March 4 after a civil war in top global producer Ivory Coast following a disputed presidential election.

“The outlook for agriculture is a lot weaker than for other commodities,” Sudakshina Unnikrishnan, an analyst at the bank in London, said at a press briefing today. “The supply side adjusted very quickly.”

Sugar prices may slide on good crops from India, the European Union, Russia and Thailand, while “very good crops” in West Africa may weigh on cocoa prices, Unnikrishnan said.

“West African crops are looking very good and it’s unlikely that we will see supply-side disruptions,” she said. “The political risk factor in Ivory Coast has also dissipated.”

Sugar may be supported at 20 cents a pound as millers in Brazil, the world’s largest producer, could switch to ethanol if prices fall too much, according to Barclays.

“Prices could go below 20 cents, but we don’t expect to see it trading at such levels on a sustained basis,” she said. “The cost of sugar production for older mills is around 16 cents to 17 cents a pound and for new units it is at 20 cents to 21 cents a pound, and this could support prices.”

Coffee supplies improved with a record off-year crop in Brazil, the world’s largest producer, she added.

Coffee on ICE

“There may be tightness in the higher quality mild coffees because of the drop in Colombian production, but this is likely to be reflected in the price difference between the various grades of coffee instead of on the ICE market,” she said.

Prices of all agricultural commodities including cotton and corn are expected to be lower next year, the bank said. Soybeans may have “upside potential,” as La Nina weather conditions may result in dry weather in Argentina and Brazil, Barclays said. La Nina is a weather pattern characterized by cool temperatures in the equatorial Pacific Ocean.

“Grain prices will ease but some support may be seen in the first quarter ahead of the battle for acreage in the U.S,” she said.

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