The drop in ag commodity prices – bar cotton – has gone far
enough, Rabobank said, foreseeing "marginal support" for wheat futures, "bullish"
prospects for cocoa and sugar, and scope for coffee price gains too.
The bank downgraded price expectations for many contracts,
including wheat, for which it cut forecasts for quarter-average prices in Chicago
by up to $0.40 a bushel, and in Paris by up to E0.15 a tonne.
Nonetheless, the reduced price forecasts - which for the October-to-December
quarter stood at $4.60 a bushel for Chicago wheat and E170 a tonne for Paris – remained
above the levels that markets are pricing in with December contracts standing at
$4.32 ½ a bushel in Chicago on Thursday, and E160.50 a tonne in Paris.
The drop in wheat futures to contract lows this week
reflected "seasonal" factors, the bank said, "as major harvests progress at
pace without issue".
In fact, prices should see "marginal support going forward,
driven by incentives to carry physical grain, and the commercial unwinding of
short positions", Rabobank said, in the second positive comments within 24
hours on wheat futures, following a sanguine outlook from Commerzbank.
Corn crop setbacks
Rabobank flagged some hope for gains in corn prices too, sticking
with a forecast for Chicago prices averaging $3.70 a bushel in the last three
months of this year, ahead of the $3.56 ¼ a bushel that the December contract
was trading at.
The bank flagged the potential from heat and dryness to
Ukraine's harvest, which it pegged at 25m-26m tonnes, behind a US Department of
Agriculture forecast of 28m tonnes, while seeing the latest Argentine harvest
at 39.5m tonnes, 1.5m tonnes below the USDA estimate.
The latest Brazilian crop was put at 98m tonnes, 500,000
tonnes behind the USDA estimate.
For soybeans, prices were forecast averaging $9.50 a bushel
in the October-to-December period, a touch higher than the $941 ½ a bushel
suggested by November futures.
However, the bank was more upbeat on prospects for some soft
commodities, saying it had a "bullish view" on sugar prices, noting the potential
for Indian imports, and for cane harvest setbacks in Brazil as the wet season
begins in the key Centre South region.
"The usual start of the rainy season is only around the
corner, typically during September," Rabobank said, adding that "we are
expecting to see some harvest disruptions" and a lower level of sugars in cane.
Sugar prices will also need to be above current levels encourage
European farmers to stick with beet rather than reverting to wheat, and "encourage
enough [beet] planting to allow for an export surplus in the European Union
from the October-to-December quarter of 2018 onwards".
'Very high grindings'
The bank also said it was "bullish" on cocoa, saying there
was "not a clear fundamental reason" for weakness in prices of the bean this
month, with demand "strong" and likely to remain so.
"Grindings came in very high for the April-to-June quarter,
and they are expected to remain very high in the July-to-September quarter, as
processing margins are very high by historical standards."
Indeed, chocolate sales growth in the US had accelerated to
2.8% in the last four weeks, according to IRI-Bloomberg Intelligence data,
while being up 1.4% over the past year.
In another upbeat sign of demand, "there is news of factory
expansion plans and companies considering new projects, which points to current
capacity being near full usage."
'Volatility simply too
For coffee, the bank stood by expectations of prices averaging
137 cents a pound in the last three months of 2017, ahead of the 129.05 cent a
pound the market is pricing in to New York's December contract.
"Trees in Honduras are showing signs of stress after the
last bumper crop," which has helped shore up world arabica supplies overall.
In Brazil, the outbreak of the coffee borer beetle may "pose
an increasing problem", with the prospect of the country's key, and
weather-dependent, flowering period to factor in too.
Indeed, the bank was it was "surprised" by a decline in implied
volatility levels in options markets, saying that "arabica volatility simply
looks too cheap".
'Bulls should be
running for the hills'
However, on cotton, the bank issued bearish comments, as it
cut its price forecast for the last October-to-December quarter by 3 cents to
65 cents a pound, behind the 68.74 cents a pound at which December futures were
"Cotton bulls should be running for the hills," Rabobank
said, flagging forecasts that while world cotton stocks will remain stable in 2017-18,
that disguises a shift in supplies from China to other countries, where inventories,
in being available to the world market, are more price sensitive.
The shift of cotton "from China's internal stockpile to
global exporters drive an 8m-bale hike in available stocks, a factor which will
continue to weigh on prices into 2018".