Goldman cuts coffee, sugar hopes, but lifts cattle


Goldman Sachs cut its forecast for coffee and sugar prices, and said it was downbeat on prospects for lean hog futures, but upgraded hopes for live cattle values on expectations of a boost to the beef market.

The investment bank, which in April lowered its forecasts for New York arabica futures by up to 30 cents a pound, on Tuesday downgraded them again, to 130 cents a pound on three, six and 12 month horizons.

The bank acknowledged the rise in prices from a Brazil frost scare which has taken some contracts above that level, although the best-traded September contract stood at 126.45 cents a pound at 06:15 local time (11:15 UK time), up 0.9% on the day.

However, it also flagged an upgrade by the International Coffee Organization to its forecast for world coffee output in 2012-13, and a US Department of Agriculture forecast of a surplus in 2013-14 despite the season being an "off" year for Brazil, which has alternate higher and lower production years.

"The expected 2013-14 surplus that would bring stocks to their highest level in five years is leading us to lower once again our forecasts," Goldman said.

'Market in surplus'

For sugar, the bank cut its forecast for New York futures in three months' time by 1.0 cents to 16.5 cents a pound, and cautioned of "downside risk" to its forecast for futures further ahead too, citing strong world production prospects.

"A record large Centre South Brazilian sugarcane harvest and a promising start to the Indian monsoon will keep the global sugar market in a surplus for the third consecutive year in 2013-14," Goldman said.

The comments will further ease nerves among hedge funds, which have appeared at risk of being wrong-footed in their hefty net short positions in coffee and raw sugar futures and options, as Brazil weather fears continue to revive prices.

New York raw sugar for October was 0.1% higher at 16.42 cents a pound.

'Record pig crop'

Goldman also cautioned of lower lean hog prices ahead, flagging the prospect of a "record pig crop in coming quarters", as signalled by a quarterly USDA hog report last month.

The USDA data showed that while the US hog and pig herd as of June 1 was smaller than expected, at 66.647m head, numbers of breeding animals were, at 5.882m head, up 48,000 quarter on quarter, and with farrowings for the September-to-November period expected to show a small rise.

"Despite continued strong domestic demand," as high beef prices switch consumers to pork, "the prospect for large hog supplies later this year, as well as lower feed prices and continued weak exports, lead us to forecast prices below the forward curve," the bank said.

'Sustain their rebound'

However, for live cattle, the bank lifted price forecasts to levels slightly above those suggested by Chicago futures, forecasting that the prospect of lower beef supplies later this year would allow prices to maintain their recent resilience, after a soft performance in the first half of 2013.

Data on Friday showed placements of cattle on US feedlots falling 5.1% year on year to 1.587m head, with animals that were placed unusually large – meaning that they are likely to be slaughtered earlier than might be expected, in the early autumn, and leaving smaller beef supplies later in 2013.

"While cattle prices have declined year to date on the combination of weak exports, competition from lower pork prices as well as resilient production, we expect prices to sustain their recent rebound given our expectation for declining beef supplies later this year," Goldman said.

It also flagged the prospect of competition between packers and ranchers for feeder cattle, assuming pasture condition improves, encouraging herd rebuilding.

"The potential for heifer retention under normal weather this summer could further tighten [feeder cattle] supplies this fall."