Rabobank: Cotton Prices Expected To Rise in '09-'10

SINGAPORE-(Dow Jones)--Sugar and cotton prices will be under upward pressure in 2009-10, as the global supply and demand balance is moving towards a price-supportive situation, according to a Rabobank report.

Sugar prices will continue the recovery starting this year, after two years of pronounced surplus production, as the global supply and demand balance moves towards a balanced or even deficit market, it said in the report Wednesday.

The bank said the supply-demand situation in 2008 has set the tone for higher prices in 2009 and 2010, referring to sugar's multi-year cyclical price movements.

However, "it remains to be seen whether the financial market turbulence and its impact on global economic growth will have a significant impact on growth in demand for sugar in emerging markets, which are the principal drivers of rising consumption."

Asia, which accounts for 44% of global consumption, has been leading the global demand growth in the past decade - with an annual rate of 3.2% versus 2.3% worldwide.

Rising populations, higher real incomes and the growth of urban populations are cited as the major drivers, which are expected to sustain the steady growth, it added.

The report also said the "relatively small changes in the allocation of cane to sugar or ethanol production can significantly impact the availability of exportable sugar from Brazil," or in turn world sugar prices, but added it is impossible to draw simple conclusions regarding the effect of energy price trends on sugar prices.

On the agricultural commodities outlook for 2009, Rabobank forecast a decline in both output and consumption of cotton for the upcoming year.

The bank projected the global output to fall by around 5% for 2008-09, with most countries expected to see a decline in production as a result of acreage competition, given more attractively priced grains and oilseeds.

Global consumption is forecast to fall for the first time in a decade in 2008-09 due to the global economic downturn and more attractive prices of polyester versus cotton, it said.

"A global decrease in cotton acreage over the next year will likely eat into stocks enough to place some upward pressure on prices," though that may be at least a year away, it said.

"Should production start to show a reasonable decrease in China, or if the U.S. should have a higher-than-expected level of crop abandonment, prices could demonstrate a bullish response."