Price Support Continues in Agriculture

World sugar futures on Wednesday were still trading strong; May 08 futures up again (currently above 12.7) after trading a range of around 12.4 to 12.7 on Tuesday. July ICE futures also crossed the mid-13 cent mark in trading on Tuesday for the first time in the last month.

As global weather in the major origins continues to be generally favorable, much of the current price support is coming from the same fundamental factors that Weather Trends has been discussing. Crude futures continue the rally exhibiting the steady progression upwards after the brief pullback in early March as West Texas Int. futures for May delivery are currently above 114, spurred by the weaker US dollar (which remains at an all time low vs. the euro).

These factors continue to make ethanol an attractive option for Brazilian producers, potentially diverting even more cane away from sugar production. As we mentioned last week, there is still plenty of physical sugar available on the world market to meet the projections in global demand, but external factors will still serve to factor in a premium regarding ICE futures prices.

In other supply side news, the Sao Paulo growing region received between 10 and 15 mm last week, with more in the forecast for the current week (between 30 and 50 mm); a 'normal' precipitation pattern will not resume in the Centre-South until May. A wetter pattern will return to Queensland's southern cane region, and weekly totals across all of the cane areas are expected to increase over the next 4-5 weeks. While this indicates positive growing conditions vs. both last year and normal (see USDA NDVI map for inland crop regions below), it also opens up the possibility for additional disease pressure, particularly in the southern Queensland/northern NSW areas.

Recent reports of fungal disease may get worse with the cooler and wetter conditions that are in the forecast for the region for the next two weeks. With the sugar market behaving as it has over the last few weeks, the Weather Trends outlook is placing fair value on nearby World sugar futures in the 11.75 to 12.7 cent range; 12.8 to 13.4 cents for July.

The weak dollar is also supporting prices in other softs. May cocoa traded at the upper range of the last 5 day period, crossing the 2700 threshold for the first time in a month. Weather has been favorable in Ivory Coast recently, and a slightly cooler and wetter pattern vs. last year is forecast through the end of April; the WTI monthly rainfall forecast for April 2008 in Abidjan is 141 mm, which is 250% of the observed April 2007 total rainfall.

In Wednesday's trading, Arabica coffee also edged higher in New York. Prices have come off of their recent highs, and May futures are still below the 50d moving average, while the rainfall outlook is favorable in most origins including Brazil, Kenya and Vietnam. As current crop size estimates are already priced into futures, any negative weather information at this stage can trigger more volatility for May/July coffee. For both cocoa and coffee, the current strength in demand, a weaker dollar, and an attractive inflation hedge should all continue to support relative prices at these levels. Refer to the WTI World Grains report for weather news in the corn/soy/wheat/oilseeds complex.