Rabo sanguine on cocoa, soy, wheat prices - but cautious on cotton


Rabobank lifted its forecast for wheat futures, and flagged potential for soybean price gains, in a briefing which saw cotton values easing ahead – despite Chinese and technical factors offering market support.

The bank flagged a "supportive outlook for international wheat prices through 2017," as it upgraded its forecast for Chicago prices by up to $0.25 a bushel, putting a return to $5.00 a bushel in prospect early in 2018.

The bank cited support to prospects from strength in Black Sea prices, which are being buoyed by a firmer rouble, and a downgrade earlier this month by the US Department of Agriculture, citing improved export hopes, to its forecast for domestic stocks at the close of 2016-17.

Nonetheless what Rabobank termed a "bullish view" left its forecasts roughly in line with prices that investors are already pricing in, both in Chicago and in Paris, where futures were seen averaging E180 a tonne in the first three months of next year.

The bank flagged the "bearish driver" of ample global stocks, forecasting that 2017-18 will be another year of global production surplus – albeit by a marginal 1.5m tonnes.

'Tight balance sheet'

For soybeans, the bank did forecast scope for price increases, seeing Chicago futures averaging $10.60 a bushel in the last three months of 2017, well above the $10.10 Ѕ a bushel that the November contract was trading at on Thursday.

The forecast was based on an estimate that US farmers will sow 86.4m acres of the oilseed this year – a rise of 3.0m acres year on year, but at the bottom end of the range of market forecasts of 86m-91m acres.

"With a tight [soybean] balance sheet relative to corn and wheat, an acreage at the lower end of the range… in 2017-18 soybean acreage would be seen as bullish for prices," the bank said, ahead of the US Department of Agriculture Outlook Forum which will give official plantings forecasts.

The bank also flagged "robust" US demand, saying that "we have yet to see a significant shift away from soymeal to alternative protein sources such as distillers' grains (DDGS)", despite the boost to US supplies of the rival feed ingredient from a drop in exports to China.

'A good time for purchasers'

And, among soft commodities, Rabobank – echoing a similar move by Goldman Sachs on Wednesday - flagged expectations for cocoa price increases too, despite cutting its forecast for New York futures by $100 a tonne across the board.

That, nonetheless, left the forecast for prices in the October-to-December quarter at $2,240 a tonne, well ahead of the $2,074 a tonne December futures were pricing in on Thursday.

"Multi-year low prices across international futures are expected to incentivise consumption into the July-to-September quarter of 2017," the bank said, adding that "now is a good time for purchasers".

It also cautioned against expecting that hedge funds will continue adding to the net short position they have lifted to a record high.

"The question is now, 'how much shorter can this fund money go'? Our answer is, 'not much'."

'Kicking the can down the road'

The bank also issued some cause for support to cotton prices too, including the potential for a return of a "squeeze" from unfixed cash purchases, which was seen as behind the early-2017 rally in the close-to-expiry March contract.

While the number of these "on call" positions, yet to be priced against futures, "has shrunk recently" against the March lot, "a large proportion has also been rolled into future contracts," and notably the May lot.

"This is effectively kicking the can down the road, and the unbalanced position will come back to drive future price direction."

Rabobank also eased worries over the prospect of China next month resuming auctions of cotton from its huge state stockpiles, flagging talk that 2012-13 crop would be targeted for sale this time.

"This is good news for exporters, as the low quality of this cotton will require blending with higher-quality fibre –most likely out of the US and/or Australia."

'Fundamentally bearish'

However, the bank left its long-term price forecasts below the futures curve - at 68 cents a pound for the first three months of 2018, compared with the 74.20 cents a pound that the March 2018 contract was trading at.

"We remain fundamentally bearish from current [price] levels," it said, highlighting growing stocks of cotton outside China, "and tepid consumption growth".


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