March 26, 2007	Monday	Rabi-ul-Awwal 6, 1428

Cocoa

WORLD cocoa production, which will probably be reduced this year by dry winds in the main West African growing countries, may increase in 2008 as the weather returns to normal, according to the International Cocoa Organization. The International Cocoa Organization's members represent 85 percent of global cocoa output, and 60 percent of world consumption.

Africa's production may recover, increasing world output by 7.9 per cent to 3.75 million tons in the year ending September 2008. Countries in Africa account for 71 per cent of world cocoa output. Looking up at the long-term trend, African production is growing, adding to adequate stockpiles. Last year's Ivory Coast production was the highest ever on record.

Record production by Ivory Coast and Ghana, the two largest producers of the crop, in the year that ended September 2006, lifted total African production by 10 per cent to 2.63 million tons, which helped lift global stockpiles by 10 per cent to 1.86 million tons. This will create a buffer should this year's African crop be damaged by dry winds from the desert, reducing world output by 5.5 per cent to 3.47 million metric tons.

Faced with world demand rising 2.3 per cent, there may be a deficit of 103,000 tons for the period ending September, the first deficit in five years. Demand will be met by drawing down stockpiles, which may drop 5.5 per cent to 1.76 million tons as a result.

Private forecast put the deficit at 250,000 tonnes.

Meanwhile, cocoa prices touched a nine-month high of £ 1037 a tonne on March 13, before easing to £ 988 on March 19. Prices have risen nearly 30 percent since the beginning of December. In New York, May cocoa features traded near two-year highs of $1815 a tonne last week Cocoa futures in New York would fall to $1,700 a ton by the end of the month. One of the key factors supporting higher cocoa prices is the drought-like conditions in West Africa and if dry conditions continue into next month, there will certainly be a readjustment to a larger world cocoa deficit. This outlook has the International Cocoa Council expecting cocoa to rise to the $2,000 price level in the next several months as world supplies tighten.

There is growing speculation that the drought could trim the Ivory Coast 2007/08 main crop as well. There have been varying accounts of the Ivory Coast cocoa export pace with the latest data showing exports for the 2006/07 season through February running 7.5% behind last season and provides further evidence of the tightening world supply situation.

Coffee

GLOBAL coffee production will decline by at least 8.2 per cent in the 2007-08 crop year, according to the International Coffee Organization. Output for the next season, which starts in October, will drop to a maximum 112 million bags. The weather phenomenon El Nino, which picked up in intensity in January, may reduce supplies further.

In Brazil coffee producers are currently concerned about the unseasonable flowering of coffee trees. Some analysts think that the 2007-08 coffee crop could be affected. Brazil's Espirito Santo state, the biggest producer of robusta coffee after Vietnam, has not received rains since March 6.

The South American country's forecasting agency Conab estimates a cut of as much as 27 per cent in output in the 2007-08 season as its coffee trees enter the low-production year of a two-year growth cycle. A further reduction in global production may widen the deficit of the beans on the market, forecast at 1.45 billion pounds by the ICO in January.

Brazil is the world’s largest producer and exporter of coffee by far, responsible for approximately 1/3 of the world's total coffee production in any given year and accounts for the majority of the higher quality Arabica Coffee traded at the NYBOT. In 2007, the world is expected to produce 117 million (60kg) bags of coffee while consuming 121 million bags.

Global coffee exports fell 16 percent to 26.13 million bags in the first four months of the current crop year from the same period last year. Vietnam exported a record amount of robusta in the first two months of the year, 6.6 million bags. Brazil, the world's biggest coffee producer, has had both too much and too little rainfall, while Indonesia, the fourth-largest, has suffered from drought.

Smaller production from Brazil, a 2007/08 production deficit, and increased world consumption are all factors behind rocking coffee prices in 2007. The prices started climbing in late 2006 around the time the first private estimates for the 2007 crop were made public. Since September 2006, the prices had climbed nearly 30 per cent.

Market analysts are of the opinion that coffee could see an increase in 2007 prices but the rallies will be limited. But currently the market is experiencing downtrend in coffee prices. May coffee initially moved lower in early trading last week, but recovered most of its losses later in the session, as light speculative buying provided much needed support.

Robusta coffee futures in London fell $19, or 1.3 per cent, to $1,506 a metric ton in London on Euronext-liffe. Prices have gained 35 per cent in the past 12 months. Arabica coffee fell 0.9 per cent to $1.1080 a pound on the New York Board of Trade. Arabica has dropped 6 percent in the past 12 months.

Sugar

WORLD production of raw sugar will rise 4.9 per cent to a record 160.2 million metric tonne and consumption will rise two per cent to 153 million tonne, according to the London-based International Sugar Organization. The organization raised its forecasted surplus to 7.2 million tonne from a November estimate of 5.8 million tonne, as rising sugar production will create a world surplus of 24 per cent larger than previously forecast for the year ending September 30.

In 2007-08, Brazilian sugar production is forecast increase by five per cent to around 35 million tonnes as production of sugar cane remains economically attractive. As Brazil is an efficient low cost producer of sugar, and all of their sugar is produced from cane, falling prices are expected to have a limited effect on sugar production over the outlook period.

Brazil's largest sugar and ethanol producing company (Cosan) has indicated that the center-south cane region may produce less sugar for 2007/2008 than past season as more cane is diverted to ethanol production. The cane crop is expected to jump 10-11 per cent this year from last year's record high. There could be major increases in exports ahead. Absorbing the record cane crop, however, is the short-term focus.

Output in India, the second-largest producer, will rise 18 per cent from the previous year to 22.8 million tons. Output in China, the third-largest producer, should rise 22% to a record of more than 11 million tonne. Globally, the amount of sugar available for export should rise to 48.1 million tonne from about 46.7 million tonne last season.

In Russia, the world's biggest importer, output has more than doubled over the past six seasons and should reach about 3.5 million tons this crop year. “Russia might become self-sufficient in sugar by 2010. Changes in supply in Brazil, the world’s largest producer of sugar, have a direct effect on global sugar prices.

The focus of attention on the size of the Brazil center-south cane crop ahead of the harvest has helped keep pressure on the market. July sugar pushed sharply lower last week to a low of 10.00 cent before the psychological support held and futures managed to bounce into the close.

Selling pressures eased when the July contract touched its lowest since mid-September 2005 and short-covering emerged to see the market close this week slightly higher at 10.18 cents on NYBOT electronic market for sugar. May raw sugar contract ended at 10.23 cents per lb.In London future market, white sugar May contract settled at $345.20 per tonne, while August contract finished at $331.40 per tonne.