Sugar, coffee and cocoa demand from end users remains weak, prices pressured – ABN Amro


The sugar, coffee and cocoa markets have been under pressure during the coronacrisis. A rapid recovery in demand cannot be expected as the uncertainties surrounding the pandemic are still too great. Due to the drop in demand, the availability of sugar, coffee and cocoa is currently more than sufficient. This increased availability will eventually have a downward effect on prices, strategists at ABN Amro brief.

Key quotes

“The sugar price has been in an upward trend since 27 April, mainly due to the recovery in the oil price. As long as the ethanol price is relatively low, sugar production will continue to increase. Greater supply means more price pressure in general. However, upward price risks have increased. Less output from Thailand, Russia and EU can offset higher output from Brazil. When in this scenario the demand outlook is buoyant, sugar price will gain momentum again, which will keep Brazilian sugar allocation elevated.”

“The price of Arabica coffee fell 24% up to 20 July compared to the level of 1 January. However, the market situation changed from 20 July, when the price increased by 21% in just nine days. Rumours of adverse weather affecting the crop in Brazil, optimism about a vaccine for Covid-19, a stronger Brazilian real, the weaker dollar and declining supplies of coffee worldwide boosted prices. However, we think this revival is only temporary. Our year-end price for Arabica coffee is currently at 111 cents per pound. This represents a decline of 4 cents per pound from current levels or about 4%. Despite the recent decline in exchange stocks, the availability of coffee remains good for the time being. Moreover, it appears that out-of-home consumption will not recover anytime soon. After all, as long as there is no vaccine for Covid-19, the growth potential of coffee demand will remain relatively low.”

“Due to the economic support measures implemented by the US central bank (Fed), sufficient dollars became available on the financial markets again. This resulted in a weaker dollar and made commodities in counter currencies cheaper. Cocoa was no exception. This set a buying spree in motion and pushed the cocoa price back to a higher level.However, this higher price will not last long. The demand for cocoa is still far from its previous level and stocks are relatively high. In the end, this will have a negative effect on the price trend of cocoa. In addition, the outlook for the cocoa supply is very positive. A good harvest is expected for the 2020/21 season, which will add to price pressure.”

 

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