SOFTS IN FOCUS
MONTHLY OUTLOOK
SOFTS: Fast Facts—June 2017
WHAT’S AHEAD?
Softs Snapshot: What has Changed and What has Not?
Stats of the Month: Cocoa Surplus Expanded
Watching the Weather: Rain-Too Much of a Good Thing
Fundamental Favorites: Cotton Rallies to be Capped for Now
ICE Update: Fourth of July Holiday Trading Schedule
www.jganesconsulting.com
Market Research, Analysis and
Advisory Services
www.jganesconsulting.com
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
Softs Snapshot
Recap of What has Changed;
and what has not?
Not All Stats Created Equally
With nearly 3.5 decades of covering the Softs
Complex as a fundamental analyst, I’ve been
amassing a rather enormous database. What
I have learned over the years that there is good
data and bad data, but also data that is simply
different. It is not that one series of information
is right or wrong but simply a distinction in how
the information is tabulated. Comparing data
between two different sources could be similar
to asking if you prefer apples to pears. There
are similarities but certainly they are not the
same.
Different data series can show
discrepancies because of the time frame in
how the data is calculated. One of the best
examples of this is in the sugar market and
frequently I am asked about the differences. It
would appear that production estimates vary
considerably and so do stocks. But the varying
views released by the both public and private
sources isn’t really as disparate as the figures
often seem. The USDA aggregates individual
country data by their respective crop years
whereas other sources use an international
marketing year for reporting purposes. This
would consistently show lower stock levels in
the USDA data as it shows the lowest level of
inventory for each country rather than stocks
on a specific date for all nations.
The USDA and the International Coffee
Organization
routinely
have
different
perspectives on world coffee output.
The
USDA data is based on information gathering
from attaché posts in numerous countries
whereas the ICO must utilize data provided by
member nations and in some instances, there
is what is considered under reporting,
particularly from Brazil where CONAB, the crop
forecasting agency typically shows much
lower production numbers than other sources.
In both examples for sugar and coffee, rather
than contrast the data, I find it best to be less
concerned about the differences from one
source to another but what are the changes or
www.jganesconsulting.com
revisions within the same data series. Is the
USDA now estimating production higher or
lower and by how much and then likewise for
other sources of information? I find this to paint
a more realistic scenario and avoids confusion
from what would seem to be conflicting
figures.
For cotton, the USDA report provides a first
glimpse of the expectations for United States
cotton production but this number is
calculated by using the March Planting
Intentions report for the acreage and then
determines
production
by
historical
abandonment and yields.
The first view
published based on actual field conditions is
not released until August and it could show
considerable revisions from the May figure. In
the FCOJ market, the first USDA forecast for the
Florida orange crop is October and private
estimates are released about 2-3 months
earlier.
The USDA would not comply with
industry requests to switch the first report to an
earlier date as they felt the sizing of the
oranges was insufficient to get reliable results.
I also consider the time perspective as critical
and the further the look back the better.
Simply comparing one season to the next does
not provide a sufficient time frame for proper
judgment. If production was dropping from
one season to the next after falling for the past
three seasons is very different than production
falling from a record high that created a bulge
in stocks. For that matter, oftentimes the mere
mention of production being at a record high,
provides a negative bias but this is not
necessarily correct if consumption were rising
at a faster pace and still exceeding output. For
orange juice, the opposite is holding true.
Stocks have fallen to the lowest level in
decades, but this is not creating tightness as
consumption has declined similarly to historic
lows and therefore, larger stocks are simply not
necessary. When measured as a percentage
of use, existing supplies on hand, are deemed
adequate.
Another common “error” is in viewing the CFTC
data and judging positions by record
long/short positions. As production and use
increases over time, so too does the need to
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
hedge these quantities, leading to a natural
gain in trading volumes. If world production
has doubled, then in general the number of
hedged positions should have risen by a similar
amount. If not, then commercial players would
be unprotected and speculating on prices,
posing a risk to their business. There are some
exceptions where this may not completely
apply such as in coffee if specialty coffee is
being purchased direct from farmers at
agreed prices that are not linked closely to the
underlying market, but these volumes are
limited in scope.
The above-mentioned examples are some of
the common pitfalls that are made when
viewing statistical information that can lead to
jumping to the wrong conclusion about future
market direction and perhaps even more
importantly the level of commitment to bullish
or bearish market views.
Technical
considerations certainly have their merit, but as
one technician remarked to me years ago, it is
not just the sharpness of one’s pencil that is
important but also how big of an eraser you
have.
Sugar:
Deficit Projections: Fears of sugar shortages
were fueled earlier in the year by expectations
of substantial back-to-back sugar deficits
which would result in very tight stocks. The
deficit was expected to be so wide in 2016-17
that It may be difficult to close the gap
between supply and use in 2017-18.
Outcome: Sugar prices have plunged not only
from good weather providing a strong start to
crop prospects for 2017-18 but the deficit in the
current season was never large enough to
create the wide scale shortages that the
market had raced higher in anticipation of.
High prices were the best cure for high prices.
Production figures were not as poor but also
limited gains in sugar consumption kept the
market from being pinched. The build-up in
sugar supplies in the prior season’s surpluses
was sufficient enough to provide a cushion
and prevent the need for importers to step up
purchases to any great degree.
www.jganesconsulting.com
China Sugar Policy: China undertook a sixmonth investigation to determine if sugar
imports caused harm to domestic producers
following a surge in imports. China’s rampant
sugar purchases and resulting build in stocks
had helped to absorb the large prior surpluses
and kept sugar prices from falling to extreme
lows in prior years.
Outcome: China has determined that the
flood of imports did cause harm to local
producers and has imposed an anti-dumping
duty of 50% over the existing tariff on sugar
imports over quota levels.
In the following
year this tax will be lowered to 25%. This should
halt large scale purchases of sugar from China,
leaving a void in the market at the same time
production amongst leading exporters is
forecast to climb.
Coffee
Brazil Harvest Underway: The 2017-18 crop is
currently being picked. A month ago, there
was strong optimism that prospects for the
crop were strong and that with good weather
during harvest, production totals could
increase. The USDA is forecasting a total
combined crop of Arabica and Robusta that is
just four million bags less than in 2016-17 with
Arabica
output
down
and
Robusta
compensating partly for this.
Outcome: Early yields are disappointing with
smaller bean sizes. This is causing concern that
the total will not reach recent predictions and
supplies of Brazilian coffee will remain tight.
Reasons for the disappointing screen sizes vary
from the heavy stress of last year, a brief
episode of dry weather earlier in the year, and
untimely rains prior to that. It is possible that
conditions improve and total output still
reaches stated goals but maybe won’t
exceed them.
Vietnam Limited Availability: The quality of
Vietnam’s 2016-17 harvest was rather poor.
Heavy rains had disrupted the harvest but
prior to that there were issues from the
lingering drought of the previous year.
Vietnamese farmers transferred coffee to
exporter hands and so have little new coffee
to sell until much later in the year.
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
Outcome: Vietnam had front loaded coffee
exports but also farmers had destocked with
much of the coffee no longer in their hands.
This leaves little fresh coffee for sale until the
next crop becomes available. Firming cash
prices can occur for those that need to buy,
but it is not the lack of coffee left in farmer
hands that is of issue, but the low quality of
the coffee that exists in stocks. This could
create greater demand for certified Robusta
stocks. Brazil is harvesting a larger Robusta
crop that will help to balance supplies.
United States Coffee Stocks: USA coffee
stocks increased further in April and were at
the highest level for the month of April since
1993 and overall the highest since 1994.
Outcome: The rise in coffee stocks in the
United States continues to reflect the large
flow of exports in the first half of the year and
will serve as a buffer against lower supplies in
the second half of the October-September
marketing year. A reduction in global exports
is normal compared to the first half of the year
season. The drop may be steeper than
normal this season, but then again, exports
were also above average thus far.
Cocoa
2016-17 Global Surplus Massive: Favorable
weather and high prices coupled with
government initiatives, helped to push world
cocoa production to vastly exceed prior
expectations.
Outcome: The ICCO lifted its surplus estimate
for the 2016-17 season owing to tremendous
increases in top producers Ivory Coast and
Ghana. Ghana alone exceeded prior views
by 100,000 tonnes. The large production is
not being easily absorbed by strides in world
grindings which are projected to grow at
levels that are still statistically below historic
average annual demand increases.
With
low prices and favorable margins, grind
indications may be a bit conservative.
Weather has been less than ideal and midcrop production may disappoint, causing the
surplus estimates to be trimmed at a later
date.
With the substantial drop in prices,
prospects for 2017-18 are for production to
www.jganesconsulting.com
fall back down and not maintain the high
rate of this season.
Cotton
USA Cotton Planting Progress: The United
States crop is getting in the ground at about
the same pace as the 5-year average with no
major issues noted. Moisture will be needed
in some areas to help to make the crop great
but there is no early indication that sufficient
rains won’t occur. All seems to be on
schedule for the planting of what could be
an exceptional crop.
The USDA’s May
estimate could be conservative if yields
match that of last season.
Outcome: The USDA may have understated
the size of the United States cotton crop if
weather stays favorable as the figures were
based on average abandonment and yields.
Actual abandonment could be lower with
higher yields and that could boost the total.
The first estimate based on field conditions will
not be released until August. However, the
USDA was also conservative on its export
target and if the quality of the crop is
excellent—a repeat of the current season—
then exports will likely exceed the current
view as well preventing a large stock build.
This would be a repeat of the current season.
FCOJ
Brazil Bounce Back: FCOJ prices have been on
the defensive ever since it became clear that
production in Brazil was going to increase
sharply in the upcoming marketing year and
provide a strong cushion in supply guarding
against a further production drop in Florida.
Brazilian groves have also been hurt by the
presence of disease, but Brazil has been able
to shift production away from the epicenter of
the disease and thereby see an improvement
whereas Florida doesn’t have the land to do
this.
Outcome:
The FCOJ market will be
adequately supplied. Poor demand remains
a problem and there is no guarantee that the
supply increase and lower prices will translate
into a pick-up in retail sales. So far it hasn’t.
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
Stats of the Month
The
International
Coffee
Organization
reported exports for April at 9.536 million bags
compared to 10.072 million the year prior, a
drop of 5.3%. Exports for the first seven month
of the 2016-17 season are running 3.1% higher.
Arabica exports are up 3.1% while Robusta
exports are 3.2% higher.
Brazilian Natural
exports are off 2.6% while Other Mild exports
gained 10.2%..
The Green Coffee Association reported United
States stocks now total 6.890 million bags end
April compared to 6.724 million in March and
up from 6.023 million bags in April 2016. This is
the highest figure for the month of April since
1993. Stocks have not been below six million
bags since March 2016.
Ivory
Coast
cocoa
arrivals
reached
1.631million tonnes through June 4th a gain of
21% from year ago levels.
The International Cocoa Organization forecast
world cocoa production at 4.692 million tonnes
up 18.13% over last season.
Grindings are
estimated at 4.263 million tonnes or a gain of
3.25%. Ending stocks will increase by 382,000
tonnes to 1.783 million tonnes, besting out the
prior high of 1.746 million held in 2010-11.
The USDA forecast world 2017-18 sugar
production to hit 179.636 million tonnes. This is
up from 170.814 million last season. The prior
record high was in 2012-13 when production
totaled 177.843 million.
Perhaps more
importantly than the production figure itself is
the forecast that import demand will fall to
51.338 million tonnes from 54.569 million. Bull
markets in sugar generally occur when there is
a sudden increase in import demand due to a
production shortfall. While import needs are
slipping, export availability is expected to
climb.
million bales to 70.522 million resulting in an
increase in ending stocks to 42.537 million from
37.668 this season.
This will be increased
competition for the United States to try to sell
cotton.
China could see a gap between
consumption and production of 14 million
bales down from 14.25 million this season. Net
imports are expected to be slightly higher at
4.95 million bales from 4.75 million. These
volumes pale in comparison to the import
levels at the start of the decade of more than
20 million bales, which resulted in a massive
accumulation of stocks in Chinese reserves
that are now being slowly auctioned off.
Nielsen reported Total OJ gallon sales down
8.0% in the latest 4-week period ending May
13th on a 2.1% gain in price. Total gallon sales
for the season are down 7.4%. This shows that
the rate of consumption decay is accelerating
rather than slowing.
Refrigerated
reconstituted OJ sales fell 9.8% and Not-FromConcentrate declined 6.8%. NFC OJ had a
smaller price increase of only 0.5% but prices
for this product are already substantially higher
than other product forms.
The CFTC reported the coffee commercial
trade is net long 4,742 contracts and has been
building positions on the long side since early
May. Speculators meanwhile are building short
positions as the market has fallen in recent
weeks holding a net short position of 6,880
contracts which exceeds the commercial net
long position.
The commercial net short
position had peaked in November at 69,632
lots which corresponded with the market
reaching highs driven by speculative longs
holding 65,103 lots on worries over rainy
weather in Vietnam and too much rain in Brazil
which caused concern that flowers could be
knocked off the trees before properly setting.
However, a period of dryer weather thereafter
aided prospects and fears of tightness
subsided.
Foreign mill demand excluding China is
expected to increase to 74.854 million bales
according to the USDA up from 72.896 million
in 2016-17. However, production is expected
to increase even more with a jump from 65.958
www.jganesconsulting.com
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
Total Cumulative Coffee Exports Up Oct-April but
now Starting to Ebb
USA Coffee Stocks Climbed Again
7.0
non-certified
certified
6.0
40.0
million 60-kg bags.
million 60-kg bags.
Robusta
45.0
4.0
3.0
2.0
1.0
35.0
30.0
25.0
20.0
15.0
10.0
0.0
Feb-05
Arabica
50.0
5.0
Feb-07
Feb-09
Feb-11
Feb-13
Feb-15
5.0
Feb-17
0.0
90/91
94/95
98/99
02/03
06/07
10/11
14/15
Source: GCA
Source: ICO
Commercial Coffee Trade Net Long on Price Drop
OJ Demand Keeps Falling
30
340
20
240
-20
190
-30
140
-40
-50
90
$7.00
Gallons
Price
$6.50
65.0
$6.00
60.0
million gallons.
0
cents per pound
thousand contracts.
70.0
-10
-60
75.0
$5.50
55.0
$5.00
50.0
$4.50
45.0
net position
futures price
-70
Aug-98 Feb-01 Aug-03 Feb-06 Aug-08 Feb-11 Aug-13 Feb-16
$4.00
40.0
40
$3.50
35.0
30.0
Apr-00
$ per gallon.
290
10
$3.00
Apr-04
Apr-08
Apr-12
Apr-16
Source: ICE, CFTC
Source: Nielsen Scantrack
www.jganesconsulting.com
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
Watching the
Weather
Cocoa Stocks/Use Ratio Increases on Large
Production in 2016-17
70%
Rain—Too Much of a Good Thing
60%
50%
40%
30%
20%
10%
76/77 81/82 86/87 91/92 96/97 01/02 06/07 11/12 16/17
Source: USDA
Sugar Production Recovery Underway as
Consumption Growth Limited
Consume
185
Output
175
million tonnes.
165
155
145
135
125
115
105
95
99/00
02/03
05/06
08/09
11/12
Source: USDA
14/15
17/18
Rain, more so than drought is the concern for
production of late in the Softs complex.
Heavy rain fell in some regions of the Brazilian
coffee belt and caused some ripening cherries
to split and or drop prematurely to the ground.
While this was not widespread, the market has
been banking on production views improving
for Brazil rather than declining. Robusta areas
could receive some beneficial rains in the next
two weeks, which would aid prospects for
2018-19. Vietnam was slogged with far too
much rain and while it has assured that farmers
have sufficient moisture for irrigation, it
became an issue for treating the crops
properly with fertilization, which requires dry
weather so it does not wash away. Colombia
also has had more than its fair share of rainfall.
Too much rain without proper sunlight could
cause an increased incidence of disease. It is
not enough to monitor the rainfall totals and
see if the volumes are sufficient or not but the
crop outcome is determined by the timing of
the rains. Downpours at night and sunny days
will lead to far less crop damage and would
more than likely be beneficial rather than
harmful.
Dreary conditions daytime with
overcast skies are problematic.
Some regions in West Africa had also had a
week or so of above normal rains with several
days lacking proper sunshine. However, this
has given way to better weather. A return to a
moderate to strong El Nino is still not a certainty
and as a result the weather may not be too
unfavorable for next season’s crops. However,
lowered pricing and reduced farm inputs will
take a toll.
The India Meteorological Department (IMD)
now sees the 2017 monsoon season at 98% of
the long-term average, which is 2% better than
its previous forecast back in April. This is based
on a neutral El Nino through year end while
other global climate centers believe there is
www.jganesconsulting.com
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
closer to a 60% chance of at least a weak El
Nino returning.
Last month Kerala state
received monsoon rains fairly early compared
to the past 6 years. The improved outlook
should benefit sugar and cotton production.
The past two seasons, poor monsoonal rains
caused havoc to Indian sugar production and
forced India to utilize stocks to meet demand
and then this year had to import some sugar,
although not nearly as much as some in the
trade had suggested.
The 2017 Atlantic hurricane season has
officially begun. Conditions are quiet now but
weather forecasters are predicting a 70%
chance of having 11-17 named storms of
which five to nine could reach hurricane force
winds. They also are predicting two to four of
the hurricanes could be a category 3 or higher.
This leaves south Florida and the citrus region
with a slightly greater risk of being hit, although
the odds are still rather slim.
Orange
production as well as cotton and sugar could
be impacted by tropical storms, especially if
they are slow moving and therefore dump
excessive amounts of rain more so than a faster
moving storm.
Fundamental
Favorite
Cotton Rallies to be Capped for
Now
still only first being planted with the length of
the growing season and potential for
disruptions. If all goes smooth, yields could be
close to this season’s high rate and production
could certainly top 19 million bales.
I believe the market is pricing in a fairly bearish
perspective and with that comes opportunity.
I believe that the market is considering the
worst-case posture and there certainly is some
leeway in the numbers. The cotton market is
apt to come under seasonal harvest pressure
due to the expected increases in worldwide
output. Thereafter, I would sing a different tune
and moderate bearish views.
The
fundamentals are actually less bearish than
they were in March when the original USDA
Planting Intentions Report was released. At
that time, the United States was still forecast to
see an increase in ending stocks for this season
and therefore, the higher carryover coupled
with a large crop would have certainly been a
burdensome development but now with
ending stocks slashed, the increase in supply
won’t seem as monumental. With planting as
large as it is, it is unlikely that a crop disaster will
occur that would spin the market completely
around and turn the fundamentals to be
exceedingly bullish, especially with worldwide
cotton sowings expected to expand and
stocks outside China increase once again. A
bull move would need to see mill use remain
strong and the best guarantee of that
happening would be for prices to sink first
under the prospect of large supplies.
New crop cotton prices were not able to keep
pace with old crop that was racing higher on
week after week of strong export sales. While
the developments for old crop were bullish, the
season ahead will start off with a bearish
posture given the potential for increased
plantings in response to better prices and mill
hopes that the strength in demand seen this
season will repeat next year.
It will be a
challenge given the United States farmers are
not the only ones with intent to plant more
cotton and increase production in 2017-18. I
had repeatedly cautioned that if the market
rallied too far, it would lead to a rather bearish
scenario for next year. The crop is of course
www.jganesconsulting.com
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE
SOFTS IN FOCUS
MONTHLY OUTLOOK
ICE Update
2017 Fourth of July Holiday Trading
Schedule
ICE Futures U.S. will observe the trading
schedule below for the 2017 Fourth of July
Holiday for the contracts listed. Changes from
regular trading hours and daily settlement
windows are shown in bold.
Sugar No. 11® and 16, Coffee “C” ®,
Cotton No. 2®, Cocoa, World Cotton, and FCOJ
DATE
TRADING HOURS
SETTLEMENT
WINDOWS
Mon,
July
3
Regular
Hours
Regular Times
Regular Hours
Regular Time
Tue, July 4
CLOSED
This newsletter is brought to you compliments
of ICE. Some helpful links about the ICE
exchanges and the soft commodities listed
there follow.
About ICE Futures U.S
Markets
Margins
Exchange and Clearing Fees
Contract specifications
Cocoa
Coffee “C”
Cotton
FCOJ-A
CLOSED
FOR MORE INFORMATION:
Sugar No. 11
World Cotton
Tim Barry
About ICE Futures Europe
[email protected]
Markets
(212) 748-4096
Margins
Exchange and Clearing Fees
About J Ganes Consulting
Food and agricultural businesses can rely on
the pertinent research, expert analysis, and
historical perspective of J. Ganes Consulting,
LLC. Our market reports, customized research,
consulting services, and workshops offer
insight, on-target forecasting, and objective
thinking.
We filter and synthesize supply-and-demand
information drawn from critical industry
publications and our personal contacts in the
field; we interpret that information; and we put
it in a context to support your business.
Visit www.jganesconsulting.com for a sample
of the weekly reports available by subscription
or to learn of other consulting services
available including workshops or private
training on risk management and the use of
futures and options that can be given
worldwide.
www.jganesconsulting.com
Contract Specifications
London Cocoa
London Robusta
London White Sugar
Euro Cocoa
Containerised-White-Sugar-Futures
Subscribe to ICE Futures updates
ICE Webinars
This report is produced by a third party service provider to
ICE Futures U.S. The views and opinions offered in this report
are solely those of J. Ganes Consulting, LLC. ICE has not
verified the information presented, and makes no
representation about its accuracy or completeness. The
views in the report are not necessarily those of
Intercontinental Exchange or ICE Futures U.S. or ICE Futures
Europe and cannot be the basis for any claim against
them. Futures and options trading involves risk and is not for
everyone.
Weekly Reports & Price Forecasts are available
through Paid Subscriptions –SIGN UP HERE