Rabobank cuts hopes for coffee, corn and, especially, sugar prices


Rabobank slashed hopes for sugar prices, downgrading expectations for coffee and corn futures too, and sticking with a somewhat downbeat forecast for wheat values, despite acknowledging the risks posed by La Nina.

The bank highlighted that the La Nina weather pattern, which is associated with cold Pacific water temperatures, was “making Argentina and the US southern Plains drier than normal.

“Concerns are rising over US winter wheat conditions due to the dry conditions, while concerns continue for Argentine corn and soybean crops.”

Indeed, the bank cut to 39m tonnes its forecast for the South American country’s corn harvest, taking the figure 3m tonnes below the US Department of Agriculture forecast, while cutting the soybean production estimate too, to 51.5m tonnes.

For corn, “dry conditions during pollination have impacted early planted crop”, Rabobank said, also flagging “deterioration in the Argentine soybean crop due to hot and dry conditions”.

‘Stubbornly rangebound’

Nonetheless, the bank reduced its forecast for Chicago corn futures, on a quarter-average basis, by up to $0.20 a bushel, citing the inability of prices – despite the Argentine worries - to break out of a trading range dating back to August.

Prices are staying “stubbornly rangebound”, Rabobank said, adding that while “price risk remains skewed to the upside” futures will “require a catalyst to break out of the recent trading range”.

Futures were forecast at $3.90 a bushel for the July-to-September period, ahead of the prices investors were factoring in to July and September futures on Wednesday, before expecting a retreat to $3.70 a bushel in the last three months of 2018, well below the $3.93 ¼ a bushel the December lot was trading at.

The forecasts factor in an expectation of a drop in US corn sowings this year to a three-year low of 89.5m acres, down 700,000 acres year on year, with ideas that depressed prices will spur a shift to alternate crops such as barley, sorghum and spring wheat.

‘Developing well’

For soybeans, the bank stood by expectations of average Chicago prices peaking at some $10.05 a bushel during the July-to-September quarter, a little below the futures curve, with a fourth-quarter forecast of $9.80 a bushel comfortably the levels markets are currently expecting.

“Brazilian soybeans look to be developing well,” the bank said, albeit with its 2017-18 production forecast of 111m tonnes below levels that many other commentators are factoring in.

And for Chicago wheat, price outlooks were maintained at $4.60 a bushel for the July-to-September period and $4.70 a bushel for the last three months of 2018 – the latter estimate particularly below the futures curve, which on Wednesday saw December futures trading at $5.10 ¼ a bushel.

While “drought and winterkill threaten prospects for the US hard red winter wheat belt” – a factor which on Tuesday saw US futures hit multi-month highs - in Europe and in Russia’s key southern export region “prospects appear more positive… with largely non-threatening weather”.

‘Weak upside price pressure’

However, in terms of downgraded price outlooks, it was New York sugar which suffered the most, with the bank cutting its forecast for quarter-average prices by up to 1.4 cents a pound, although leaving them largely above the level that investors are factoring in.

For instance, the 15.0 cents-a-pound expected for the last three months of 2018 was well above the 14.18 cents a pound October futures were priced at on Wednesday, although only marginally above the value of the March 2018 contract.

“Crop prospects have improved, and there remains no major reaction to low prices outside of Brazil,” Rabobank said, adding that it was “hard to see production going down significantly in the immediate future” given the prospect of further strong beet sowings in Europe and upbeat Asian prospects.

Indeed, La Nina, while a threat to Argentine row crops and US southern Plains wheat, “is likely to bring above-normal moisture to South East Asia.

“We expect only weak upside [price] pressure from this point.”

Arabica vs robusta

For coffee, price outlooks were trimmed too, by up to 6 cents a pound for New York arabica futures, and up to $90 a tonne for London-traded robusta beans.

The bank cited “very large exports from Honduras and Uganda” as behind the downgrades, with both countries showing 16% growth in recent months.

Still, the price forecasts remained ahead of the futures curve – marginally in the case of arabica, with for instance an estimate of futures at 133 cents a pound in the October-to-December period, but moreso for robusta, for which values were seen at around $1,850 a tonne through the second half of 2018.

“In our supply and demand balance for 2018-19, we only envisage a small robusta surplus – and that is considering another good crop in Vietnam,” the top grower of the variety.

“Therefore we expect robusta prices to be very well sustained, and they could go further up if arabicas do.”


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