Rabobank upbeat on soy, sugar prices - but not on corn and cotton


Rabobank forecast recoveries in soybean and sugar futures, even while cutting its price forecasts for both commodities – while seeing declines ahead for corn and cotton values.

The bank slashed its forecasts for New York-traded raw sugar futures by up to 3.1 cents a pound, citing the tumble in prices this month - which it saw down largely to factors unrelated to the sweetener itself.

"Much of the drop seems to coincide with the decline in crude oil, which lowered funds' appetite for large positions in commodities," Rabobank said.

Indeed, latest regulatory data, for the week to last Tuesday, show the largest cut on record in hedge funds' net long in the major US-traded agricultural commodities, including a 29,000-contract tumble in the net long in raw sugar futures and options.

Nonetheless, Rabobank said that it was "hard to imagine" a further big drop in sugar futures, with values approaching levels that would incentivise Brazilian mills to make ethanol from cane instead, and with output in the country constrained by a lack of standover cane from 2016-17.

The bank forecast sugar futures averaging 18.0 cents a pound over the October-to-December period, ahead of the 17.43 cents a pound being priced in by New York's October contract on Thursday.

'We remain bullish'

Similarly with soybeans too, the bank reduced its forecast for Chicago prices, by up to $0.50 a bushel, but to levels above the futures curve, with values seen, for instance, averaging $10.50 a bushel in the July-to-September quarter.

September futures are trading at $10.00 ј a bushel.

The forecast reflected an expectation that US sowings of the oilseed will rise by 3m acres this year, to 86.4m acres – a record high, but well below the 88m acres or so Rabobank said that the market was pricing in.

"Soybean prices are expected to remain somewhat supported by the continued need to remain at a large premium versus corn, and due to our continued view of a smaller-than-anticipated increase in US planted acreage.

"We remain bullish with regard to the futures curve."

Corn vs soybeans

By contrast the bank forecast US seedings of corn, the major rival in the country's spring sowings programme, falling by less than the market is factoring in – a bearish sign for prices.

"Despite it being a more expensive crop to plant, we believe crop rotation, agronomics and yield potential will provide enough incentive to limit the reduction of corn acres shifting to soybeans in some areas."

Corn sowings were pegged at 91.5m acres, a drop of 2.5m acres year on year, but above a market consensus viewed at 90m acres – although the bank cautioned that the bigger-than-expected area might only become apparent later in the season, rather than in a key US Department of Agriculture plantings report due on March 31.

Corn futures were foreseen averaging $3.65 a bushel in the last three months of this year, below the $3.81 ј a bushel being priced into December futures.

'Polyester prices falling…'

For cotton too, the bank forecast a fall in prices ahead – despite nudging higher many of its price forecasts by 1 cent a pound.

Its estimate of New York futures averaging 70 cents a pound for the last three months of 2017 compared with a December contract price of 75.45 cents a pound.

"Macro outlooks appear to darken cotton demand," the bank said, flagging "concerns" over China and Europe which "if realised, could pressure consumer incomes", so undermining clothing demand.

Cotton faces tougher competition too from artificial fibres, whose values have been undermined by the drop in oil prices.

"With polyester prices falling – down 7 cents a pound month on month to 51.44 cents a pound… - manufacturers may shift inputs towards synthetics."


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