Cocoa and cotton represent rare hopes refuges in a downbeat
picture for agricultural commodities, Macquarie said, downgrading forecasts
for corn, sugar and wheat prices.
"The two commodities where we still think there is more
upside remaining are cocoa and cotton in 2014," the bank said, and even then
seeing only cocoa as likely to hold its strength throughout the year.
The cocoa market "is in a structural deficit owing to strong
global demand and a supply base concentrated in Africa and Asia that is
struggling to catch up – implying prices will remain firm over both 2014 and
2015", the bank said, raising by $125 a tonne to $2,725 a tonne its forecast
for the average price of New York's front futures contract this year.
While cutting by 65,000 tonnes to 105,000 tonnes its
forecast for the world cocoa production deficit, it forecast "another tentative
deficit for 2014-15 too", given a revival in demand, which will prompt a "scramble
for cocoa butter to re-emerge in the second half of the year".
The bank added that "price rallies will tend to materialise
mostly in the second half of the year," once origin selling is "more complete, leaving
speculators and uncovered demand-side industry more free to push the market higher".
Year of two halves
For cotton, price strength will be limited to the first half
of 2014, with the bank downgrading its forecast for values in the second half.
While the first half of the year will be marked by "tight"
stocks outside China, and "not least in the US", the second half will be marked
by a "more bearish market environment", enhanced by increased production
prospects, given relatively high prices compared with grains.
Chin's change in its agricultural support regime in favour
of direct subsidies for cotton farmers, rather than guaranteed prices, may also
undermine values, in potentially "lowering domestic prices, thus curbing mills'
import requirements", Macquarie said.
"Any associated move to release more of China's vast
reserves onto the market will be perceived as bearish."
For raw sugar prices, Macquarie forecast some recovery in
prices in the second half of the year, although only to 18.5 cents a pound in
the October-to-December quarter, 1.0 cent below its previous forecast.
"With Indian mills struggling, and pockets of dryness in
Australia's cane areas, global sugar production could fall again," the bank
"In turn, this would lead to a tiny deficit developing from
the season starting in the fourth quarter, which would help support prices
However, little relief is in sight for prices of corn, for which
Macquarie cut its forecast for average prices in 2014 by $0.44 to $412.50 a
"The world corn market has clearly now moved from the
structural tightness that had been seen over the last three years to a period
"In general, we hold a bearish-to-neutral view on corn prices
all the way through to 2015, as we believe the world's farmer will need to see
consecutive seasons of low prices to see a large enough volume of production
removed to make a bullish market."
The weak corn market will be a "drag" on wheat prices too,
for which Macquarie trimmed its forecast for average Chicago futures values
this year by $0.25 to just over $6.31 a bushel.