Rabo upbeat on cocoa, corn prices - but 'bearish' on palm oil, cotton

28.09.2017
Cocoa is the best bet among crop commodities, with corn and sugar posting the potential for gains too, said Rabobank, while saying it was "bearish" on cotton, and on palm oil too despite lifting price expectations for the vegetable oil.
 
The bank said it was "bullish on cocoa", sticking with price forecasts for the beans above those that markets are pricing in, seeing New York futures, for instance, average $2,030 a tonne in the first three months of next year.
 
The March 2018 contract was on Wednesday trading at $1,980 a tonne.
 
The forecast reflected an expectation that recent price weakness – and notably rumoured offer by Cote d'Ivoire of 750 CFA francs per kilogramme for main crop beans for 2017-18, down from 1,100 CFA francs a year before – "will have a significant detrimental effect on production".
 
The bank pegged 2017-18 cocoa output from Cote d'Ivoire, the top producer, at 1.85m tonnes, below the record 2m tonnes reported for this season, which ends on Saturday.
 
The production drop - which comes as stocks are easing in the US, a major consuming country – "would have been significantly larger… if the weather had not been as good" of late, Rabobank said.
 
Corn prices to rise?
 
For Chicago-traded corn too, the bank saw scope for price gains, forecasting futures averaging $3.80 a bushel in the first three months of 2018, ahead of the $3.63 ¼ a bushel the March contract was priced at.
 
The forecast reflected expectations that the US corn yield this year will average 166-168 bushels per acre, a little below the 169.9 bushels per acre expected by the US Department of Agriculture.
 
"High levels of variation" in yield reports from the early harvest "lead us to believe US corn yields will be below the current USDA forecast", the bank said, while seeing a dent to Brazilian sowings of the grain from local prices which have dropped as much as 50% year on year.
 
At the equivalent of some $2.00 a bushel in Mato Grosso, the main grower of second crop corn, "low prices will impact the planted acreage", with combined main and second crop seedings seen down 2-3%.
 
Weather factors
 
For sugar, Rabobank forecast New York prices averaging 14.8 cents a pound in the first quarter of 2018, well ahead of the 13.97 cents a pound that the March contract was trading at, citing the prospect of weaker values prompting Brazilian mills to turn more cane into ethanol rather than sweetener.
 
Ethanol is also likely to be favoured by the onset of seasonally wetter weather, which tends to favour output of the biofuel over sugar.
 
However, the bank was more neutral on prospects for prices of coffee, seeing prices average 137 cents a pound in the last three months of this year, ahead of market expectations, but fall below the futures curve from the April-to-June quarter of 2018.
 
The market could, though, "be looking at significantly higher price levels" if forecast rains do not materialise for Brazil, where dryness has already caused a "dent in the potential" of the 2018 crop.
 
Wheat and soybeans also have a more neutral outlook, comparing price forecasts with futures curves.
 
'Bearish bets'
 
And the bank said it was "bearish" over prospects for cotton prices, curtailing to 800,000 bales its "worst case scenario" for US crop damage from hurricanes Harvey and Irma, leaving the forecast harvest at 21m bales.
 
Rabobank, seeing New York futures average 65 cents a pound in the first three months of 2018, a little below the 67.72 cents a pound suggested by the price of the March contract, also termed "optimistic" a USDA estimate for US exports of 14.9m bales in 2017-18, with competition from India likely to heat up.
 
The outlook for palm oil prices was also "bearish", as inventories of the vegetable oil in top producers Indonesia and Malaysia "continue to build up".
 
Meanwhile, demand from top importers India and China will weaken as 2017 continues, undermined by relatively high prices and "seasonally tepid" demand after the ending of current festival periods, including the ongoing mid-Autumn holiday in China.
 
Although the bank raised its forecast for Kuala Lumpur palm oil futures up by to 200 ringgit a tonne, estimates for values such as the 2,500 ringgit a tonne seen in the first quarter of 2018 remained comfortably below the futures curve.
 
 

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