Setbacks in cotton and sugar prices do not herald the end of the soft commodities rally, analysts have said, with ABN Amro forecasting that $3-a-pound cotton could soon appear a "low call".
A slump in sugar prices, which in London fell on Monday to a two-month low, "is not on the cards for the time being", Commerzbank analysts said.
Although better production is expected in 2011-12 in the key producing countries of Brazil, India and Thailand, with sugar trader Kingsman forecasting a 5.6m-tonne supply surplus in the year from April, "it will take months for the [sugar] market situation to noticeably ease", the bank said.
Indeed, separately ABN Amro said that it saw a "strong chance of speculative investment returning" into sugar thanks to tight global supplies, with price prospects enhanced if India fails to allow exports.
'Higher price spike'
ABN was also upbeat on prospects for cotton futures, which jumped to a new record on Friday, only to close down 7.00 cents at 197.02 cents a pound, falling the maximum allowed by New York exchange.
"Cotton prices at $3 a pound? That could be a low call by the middle of the this year, now that [New York's] benchmark March contract?has breached $2," the bank said, noting it would be some time before the impact of an expected jump in plantings fed through.
"Even though farmers will definitely plant more cotton this year than last, stocks will remain very tight by the end of the 2010-2011 marketing year.
"Our view is that the bounce-back in output will come too late to prevent an even higher price spike."
'Further rally'
Meanwhile, the rally in coffee prices, which has seen New York's arabica futures hit their highest for 13 years, "could have much further to go", ABN added, noting that the world would head into 2011-12, an "off" year in the two-year Brazilian production cycle, with "fairly low stocks" of arabica beans.
Indeed, speculators' bets on rising arabica coffee prices were, at a net long of 32,195 contracts as of February 8, relatively low, holding out the potential for a significant uplift.
Speculators' net long interest, as measured by non-commercial and non-reportable positions, hit 63,775 lots two years ago.
"Given the current relatively low net long of the more mobile speculative money, we could easily imagine a further price rally in the weeks ahead, particularly in arabica," said ABN, whose research is published in conjunction with VM Group.
Strong arabica prices would pull up futures in London-traded robusta beans too, "although at a somewhat slower pace, as evidenced by an arbitrage of more than 160 cents pound" between the two types of coffee.
Market prices
Robusta for March delivery stood 1.3% higher at a two-year high of $2,288 a tonne in lunchtime trade on Monday, while London white sugar for May fell 0.4% to $718.00 a tonne.
Earlier, the lot hit $713.00 a tonne, the lowest for a spot contract since the start of December.
New York soft commodity markets were closed on Monday for America's President's Day holiday.
