Arabica coffee futures rose to a near one-month high at midweek, boosted by an uncertain global supply outlook, before falling sharply on Nov. 20 after a better-than-expected U.S. Department of Agriculture (USDA) forecast for the Brazilian crop surprised the market.

March arabica coffee futures on New York’s ICE Futures U.S. exchange climbed as high as $2.0135 a pound on Nov. 19, the highest for a second-month contract since Oct. 22, before settling 6.20 cents up on the day at $1.9910 a pound.

However, after the USDA raised its output forecast for the world’s biggest  producer, ICE March arabica settled 10.25 cents lower at $1.8885 a pound. This key second-month contract had finished last week at $1.9635 a pound.

The USDA in its semi-annual coffee report, published Nov. 19, said Brazil is likely to produce 51.2 million 60-kg bags of coffee beans in this coffee year (Apr. 1, 2104-March 31, 2015), up 1.7 million bags  or 3.4 percent higher than its previous forecast. The U.S. department cited “better-than-expected-agricultural yields in growing areas” for the upward revision.

A smaller  2014-2015 Brazilian crop had been anticipated by the market on account of the damage caused by the severe drought that hit central and southern Brazil in January and February. However, the USDA pointed out the new estimate is still some 3.3 million bags down on the previous year’s output.

The  International Coffee Organization (ICO) sees global coffee demand growing at  2.5% a year through  to 2020 when consumption is expected to reach 175 million 60-kg bags, up from 149.45 million  bags this year.  As reported here last week, the industry group sees a global deficit of 800,000 bags for 2014-2015, which will be partly covered by Brazilian stocks.

But with a smaller Brazilian crop produced this season and an even smaller crop expected for 2015-2016 on account of the damage sustained by the extreme drought in key coffee-growing areas of the country, the market expects Brazilian stocks to see considerable drawdown in the coming months.

Global coffee production therefore will need to grow considerably to avoid further deficits in the coming years,  Commerzbank said in its Daily Commodities note on Nov. 19.

“The drought in Brazil at the beginning of the year and the leaf rust plant disease that has been raging in Central America for the past two years show that the supply outlook is fraught with considerable uncertainties. This points to lasting higher prices, especially for arabica coffee,” the bank said.

Unlike the arabica coffee market, there are few concerns about any shortage of robusta beans.

With a big crop expected in Vietnam, the world’s largest producer of robusta coffee beans, and better production in Indonesia, the robusta market is expected to remain well supplied. January robusta on the London-based ICE Futures Europe exchange settled $13 down on Nov. 20 at $2078 a tonne but $4 up on last week’s close.

Cocoa consolidates, raw sugar dips

Cocoa futures were trading a little higher this week as the market consolidated above the 9⅟2-month low touched on Nov. 13 by the benchmark March contract on ICE Futures U.S. After powering to a 3⅟2-year peak in late September on worries that the Ebola virus could spread to the two top cocoa-producing countries, Côte d’Ivoire and Ghana, and severely disrupt cocoa bean shipments from those nations,  the cocoa  market has turned increasingly bearish.

Prospects of a bumper main harvest in Côte d’Ivoire and a strong pace of bean deliveries to the country’s ports and expectations of a good main crop in Ghana have weighed heavily on the market in recent weeks, as have easing concerns that the two countries could suffer an outbreak of Ebola.

March cocoa on ICE Futures U.S. settled at $2,829 a tonne, down $6 on the day, on Nov. 20. A week earlier, on Nov. 13,  ICE March cocoa had dipped to a 9⅟2-month low of $2,780 a tonne.  In London, March cocoa on the ICE Futures Europe exchange finished £5 down on the day at £1,874 a tonne.  Like its ICE Futures U.S. counterpart, this second-position contract in London had hit a low of £1,844 a tonne on Nov. 13.

As with cocoa, there was a lack of fresh news in sugar markets this week. After last week’s strong gains on short-covering, raw sugar futures moved lower again. March raw sugar on New York’s ICE exchange settled at 16.10 cents a pound by Nov. 20, up 0.23 cents on the day. On Nov. 12, March raw sugar had closed as high as 16.36 cents on the short-covering.

White, or refined, sugar on London’s ICE Futures Europe exchange finished at $421.70 a tonne on Nov. 20, up $5.30 on the day.

Oil markets focus on OPEC meeting

After hitting a four-year low of near $77 a barrel, Brent crude climbed to just above $80 a barrel at close on Nov. 17. This week, however, Brent has been heading mostly downward again, with the January contract on London’s ICE Futures Europe exchange settling at $79.33 a barrel on Nov. 20 after falling as low as $77.56 earlier in the day.

The U.S. crude benchmark, West Texas Intermediate, for December delivery on the New York Mercantile Exchange (Nymex) had dropped to $73.25 a barrel at the end of last week before settling at $75.82. On Nov. 19, the front-month contract – December – touched a low of $73.91 before closing at $74.50 a barrel.   The new front-month WTI contract – January settled $1.35 up the following day at $75.85 a barrel.

The WTI had come under particular pressure this week following bearish U.S. inventory data from both the American Petroleum Institute and the U.S. Energy Information Administration (EIA) which showed unexpected steep rises in U.S crude oil inventories as well as increased stocks at the key Cushing, Oklahoma storage hub.

The EIA reported a 2.6 million barrels climb in U.S. commercial crude inventories to 381.1 million barrels for the week to Nov. 14 as imports rose to meet demand from refineries increasing their runs after seasonal maintenance.

Motor gasoline stocks also increased by 1.0 million barrels but distillate fuel inventories, which include heating oil,  fell by 2.1 million barrels last week.  At Cushing, crude stocks increased by 0.7 million barrels to 23.2 million barrels last week.

Oil markets remain focused on OPEC’s meeting in Vienna to be held Nov. 27 where members will meet to consider adjusting the group’s output target of 30 million barrels a day.  Last month, OPEC was producing above this target, with output averaging 30.25 million barrels a day, according to its own figures. This marked a reduction on September’s production which averaged 30.48 million barrels a day.

Market opinions are mixed as to whether an agreement will be reached among OPEC members to cut output and help stem the current supply glut which has seen crude prices tumble by more than 30 percent since June.

Gold prices on the Comex division of Nymex moved back above the psychologically-key level of $1,200 a troy ounce in early trade on Nov. 21 although analysts expect gains to be limited by the strong U.S. dollar and more positive U.S. economic data. Investor interest in the precious metal has been floundering in recent weeks amid increasing optimism about the strength of  the U.S. economy and expectations that the Federal Reserve now will hike interest rates sooner than previously had been anticipated.

Gold for December settlement on Comex had finished Nov. 20 $3 down at $1,190.9 a troy ounce, up some $5 up on last week’s close at $1,185.6 an ounce.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.