Softs enjoy firm prices: the price of soft commodities such as tea and coffee has also benefited from the general boom in commodity prices brought about by increased demand and fairly static supply. Moin Siddiqi's annual review follows.

Author:Siddiqi, Moin
Position:Commodities
 
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The run up in commodity prices since 2003, led by energy, metals and minerals, has spilled over into the soft commodities. Beverage prices--which rose by 21% in 2005--remain firmly on an upward trend. This, in turn, reflects low coffee stocks in importing countries, reported at a 50-year low, and expectations of a smaller-than-expected East African tea crop this year. This is significant as Kenya is the world's largest tea exporter.

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The cocoa and coffee markets are likely to dip into higher production deficits compared with previous seasons, but a ballooning Indian tea harvest should keep the market well supplied. The food price index, which includes sugar, maize, rice, wheat and edible oils, is expected to rise this year on the strength of sugar prices.

Maize and rice farmers are receiving slightly higher returns on their cash crops, and prices for agricultural raw materials such as timber and rubber have also gained strength. Sawn wood prices have shown a particularly strong recovery thanks to robust consumption activity in China and new demand from the US for housing reconstruction in hurricane-affected areas. Although the prices of major tropical commodities such as coconut and groundnut oils have fallen in recent months, natural rubber prices are benefiting from increased demand as the petrochemicals industry for synthetic rubber--its substitute--has to cope with higher oil prices.

Meanwhile, cotton prices are likely to remain stable owing to favourable harvests. The International Cotton Advisory Council projects a modest market deficit of 500,000t in 2006/07. Our round-up of latest trends starts here:

Cocoa

The International Cocoa Organisation (ICCO) is expecting a total 2005/06 crop of 3,358,000t, up just 0.9% on the previous season. Global grindings, a barometer of worldwide consumption, stands at 3,411,000t. This indicates an output deficit forecast (allowing for 1% bean weight-loss) of 87,000t, compared with a shortfall of 20,000t during the 2004/05 season. The West African nations--led by Cote d'Ivoire--produce approximately 70% of the global harvest. Cote d'Ivoire, the world's top producer, should contribute 1,320,000t to the world market with Ghana producing 550,000t, Nigeria 200,000t and Cameroon 190,000t. Outside Africa, the major cocoa producers are Indonesia at 445,000t, Brazil at 170,000t and Ecuador at 116,000t.

Stocks will probably end the cocoa market's year (on September 30, 2006) at a total of 1,376,000t, representing stocks-to-use ratio of 40.3%, or five months of annual consumption. By contrast, last season's stocks were 1,463,000t (stocks/grindings ratio of 44.1%).

In 2005, cocoa price averaged $1,539/t, down from $1,756/t in 2003. On the consumption side, according to the ICCO, the top five consuming nations in 2004/05 were Holland that used 460,000t, followed by the US at 419,000t, Cote d'Ivoire at 330,000t, Germany at 235,000t and Malaysia at 235,000t. Europe and the Americas accounted for 42% and 26%, respectively, of world grindings.

Grinders and manufacturers generally prefer African cocoa to the Asian varieties from Indonesia, Papua New Guinea and Malaysia. The latter contains excess free fatty acid and therefore needs to be blended in order to be palatable. Cropcast services, the US-based agricultural meteorological division of the Earth Satellite...

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