Rabobank sees scope for coffee, sugar price recoveries - but downbeat on grains


Rabobank maintained expectations for, some, revival in coffee and sugar prices, even as it forecast a retreat in grain and soybean futures ahead, and an easing in cocoa values despite an upgraded price target.

The bank stood by expectations of raw sugar futures recovering to average 14.5 cents a pound in the last three months of 2018, well ahead of the 13.29 cents a pound the market was pricing into New York October futures on Thursday.

The forecast reflected the financial incentive for Brazilian mills to turn cane into ethanol, worth the equivalent of 18 cents a pound, rather than sugar at current price levels.

“If the parity does not plummet close to within 2 cents of the raw sugar price, all mills will favour ethanol over sugar,” the bank said, although cautioning over the threat to India, whose 2017-18 output has been upgraded to a record high – and which had been expected to be the “real big [cane] crop.

“There remains a risk that the next harvest, 2018-129, may go from being a huge crop to a becoming a monster crop.”

‘Lacklustre output’

For coffee, the bank stood by expectations of New York arabica prices averaging 133 cents a pound in the October-to-December period, and London robusta futures $1,850 a tonne, estimates again ahead of futures curves.

Arabica futures for December were on Thursday trading at 127.10 cents a pound, with the November robusta lot at $1,778 a tonne.

In arabica, the bank flagged doubts as to whether Honduras can keep up its strong pace of exports, up 13% so far in 2017-18, saying it is “still not certain” whether they will “finish above or below last year’s by the end of the season”, and restating ideas of some disappointment in Brazilian output too.

Meanwhile, for robusta the market, the bank said that output in Espirito Santo, Brazil’s top growing state would be, at 15.8m bags, “still at a lacklustre level”, if higher than drought-hit levels of the previous two seasons.

‘Price break risk’

However, for cocoa, while the bank raised its forecast for New York futures in the October-to-December period by $150 a tonne to $2,450 a tonne, the forecast remained below the futures curve, with the New York December contract trading at $2,595 a tonne.

West Africa’s imminent mid-crop harvest is “likely to exacerbate the tightness in the market”, with the potential indeed for 2017-18 to “turn from a surplus year into a deficit year” for world production.

But Rabobank added that it could not discount “a price drop”, with a recent easing in futures offering funds “an incentive to stop piling up long contracts”.

“We see a risk for a price break and volatility.”

Drought damage ‘somewhat reversible’

Among grains, it forecast too weakness ahead, seeing Chicago wheat futures at $4.70 a bushel in the last three months of the year, below the $5.10 ½ a bushel currently priced in to the December contract.

While drought has cut prospects for the US winter wheat crop, damage “is somewhat reversible if spring wheat occurs favourably,” the bank said, flagging that moisture levels in the Black Sea had been “reported as ideal for spring plantings, improving production prospects in 2018-19”.

Indeed, Russia looked set for another strong harvest although, currently forecast at 73m tonnes, it looked “unlikely” to match last season’s record 83m+ tonne crop, a performance which would “inject a very bearish influence into 2018-19 global markets if realised”.

‘Bearish’ on soybeans

For soybeans, futures were forecast trading at $10.00 a bushel in the October-to-December period, below the $10.27 ¼ a bushel priced in to the November lot, with the bank saying it was “bearish into the latter half of this year”

“We anticipate record US soybean plantings, combined with continued high yields, to add some price pressure to markets,” although “weather risks remain a concern” and, with the potential for factors such as the oilseed getting dragged into China-US trade wars, investors should brace for volatility.

The bank also cut its forecast for Argentina’s drought-hit soybean crop from 46m tones to “below 40m tonnes”.

For corn, futures were seen averaging $3.70 a bushel in the fourth quarter, below the $3.98 ¾ a bushel the December contract was trading at, although it was a little more upbeat, at $3.90 a bushel on prices in the July-to-September period.

“Fundamentally, 2017-18 stocks are forecast to erode, both for the US and globally, albeit from record levels.”


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