Corn and soft commodities bar cotton – look better bets for price rises than soybeans and wheat, according to Rabobank, which said it was “slightly bullish” on sugar, and “bullish” on coffee despite boosting supply estimates.
Among grains, the bank said that wheat prices faced “an uphill struggle into early 2018”, cutting its forecast for Chicago futures by up to $0.20 a bushel on a quarter average basis, leaving them roughly in line with levels investors are factoring in.
For the April-to-June quarter of next year, for instance, the bank forecast prices averaging $4.70 a bushel, compared with the $4.67 a bushel May futures were trading at on Tuesday.
“Wheat futures remain under significant pressure following the arrival of the northern hemisphere harvests and a projected fifth year of global stock building,” the bank said.
“Global export business remains particularly competitive,” although a rise in Russia offers, up 6% since September to $195 a tonne, “looks to alleviate what was previously a single origin market”, with the former Soviet Union in control after its record harvest.
For soybeans, while the bank nudged higher its price estimates by up to $0.15 a bushel, its forecasts remained a little below the futures curve, with a forecast for values at $9.90 a bushel in the April-to-June period, below the $10.08 that the May contract is priced at.
“Despite recent strong export demand, US yields exceeding 49 bushels per acre are seen as a longer-term bearish market factor, particularly following the record 2016-17 South American harvest and continuation of strong export competition.”
And in rival row crop cotton, Rabobank kept a “short-term bearish outlook” on New York futures, saying that the US crop “came away relatively unscathed” from recent hurricanes, and saying that “fundamentals continue to point towards higher world supplies”.
While noting concerns over the quality of the US crop, thanks to rains and worries over a cold snap in west Texas, the bank said that “evidence of this is so far limited”, and forecast prices dropping to average 65 cents a pound in the January-to-March quarter.
March futures were on Tuesday trading at 68.75 cents a pound in New York.
‘The most bullish development’
However, the bank was upbeat on other New York-traded soft commodities, terming itself “slightly bullish” on raw sugar, in which it stuck with expectations of futures returning above 15 cents a pound in the April-to-June period an outcome that investors are not pricing in until early 2019.
“Higher prices are likely next year, given the situation in Brazil,” the top producing country, the bank said, flagging the prospect of a smaller cane harvest next year, after a weak replanting rate, and with recent dry weather posing a threat to yield prospects.
On cocoa, the bank raised its estimates for New York prices by up to $110 a tonne, leaving the forecast for the April-to-June quarter at $2,150 a tonne, a touch above the $2,130 a tonne suggested by May 2018 futures.
Rabobank termed as “the most bullish development” a decision by Cote d’Ivoire, the top producing country, not to raise the price paid to farmers for the newly-started main crop harvest, a move that “will discourage harvesting efforts and will result in lower fertilizer use”, dogging 2018 output.
The bank flagged too that “demand has been better than the most optimistic expectations”, helped by “very high” processing margins, and signalled that its price forecasts might have been higher were it not for sizeable inventories.
‘Options market in denial’
On arabica coffee, the bank, while trimming its forecast for futures, left them a touch above the futures curve, saying that it was “bullish in the near term” over prices, thanks to the threats posed by the likes of dry weather and berry borer beetle infestations to Brazil’s 2018 output prospects.
While there are “many ifs” to the prospect of a record Brazilian harvest next year, a bumper crop “is the only scenario that many funds are looking at”, retaining a sizeable net short in arabica derivatives.
“The options market is in denial,” in showing implied volatility in at-the-money contracts at the lowest since 2013, despite the Brazilian weather threats.
The upbeat comments on coffee prices came despite a reduction of 1.2m bags, to 4.9m bags, in the bank’s forecast for the world production shortfall in 2017-18, with last season now seen as showing a surplus, of 1.1m bags, compared with the 200,000-bag deficit previously factored in.
Price lows already passed?
In Chicago corn too, Rabobank lowered its price forecast, by up to $0.15 a bushel, but to levels above the futures curve, seeing prices hit $4.00 a bushel in the July-to-September period of 2018, an eventuality that the market is not factoring in until early 2019.
Chicago corn prices “could have already set their seasonal lows”, the bank said, flagging a growing focus on plantings in South America, “where conditions remain mixed.
“Northern and central Brazil remain drier than ideal, which is slowing down planting progress.”