Commerz cautious on cocoa, coffee, sugar prices

Commerzbank sounded a cautious note on prospects for soft commodity prices despite raising its forecast for coffee futures, saying investors may have overreacted to ideas of supply shortfalls.

The bank cut its forecast for New York raw sugar futures for the July-to-September period by 1.0 cents a pound, and reduced its expectations for the following two quarters too, placing them largely below the levels investors are factoring in.

While Commerzbank acknowledged the shrinking estimates for output in Brazil's Centre South region, where the cane crop has been damaged by drought, it highlighted improved expectations for Thailand, the second-ranked sugar exporting country.

There, officials foresee output of a record 12m tonnes in 2014-15 thanks to a switch by growers to cane after the end of a rice subsidy programme.

And in India, the top sugar consumer and second-ranked producer, output, while diminished by a poor monsoon, should be "more than enough to cover domestic demand", the bank said, quoting an estimate of 25.3m tonnes from the Indian Sugar Mill Association.

Even if world production for 2014-15 falls 2m-3m tonnes observers short of consumption, as forecast by many observers, this " would not lead to a genuine scarcity" of supplies, after four successive seasons of production surplus.

"High stocks thanks to the previous years' surpluses should continue to prevent major price jumps," the bank said.

'Genuine shortage not on the cards'

For arabica coffee, Commerzbank raised its forecast for prices out until the end of 2015, by up to 60 cents a pound, also citing the growing evidence of damage to Brazilian production from drought.

 However, while arabica coffee "is likely to remain scarce£ a genuine shortage of supply on the coffee market is not on the cards", the bank said, citing forecasts for decent production of robusta beans in Brazil and in Vietnam, the top producer of this variety.

While Vicofa, the Vietnam coffee and cocoa association, foresees Vietnamese coffee output at 23m bags from 2014-15, down from a harvest last time pegged by the International Coffee Organization at 27.5m bags, this may be an underestimate.

"Vicofa also puts the 2013-14 harvest at only 23.3m bags and, is known to have issued overly pessimistic forecasts in recent years."

Cocoa to cool

For cocoa, Commerzbank kept its forecasts for London futures at £1,900 a tonne for the next two quarters, and £1,950 a tonne in mid-2015, again below the levels investors are pricing in.

London cocoa futures for September hit £2,077 a tonne on Friday, the highest for a spot contract since March 2011.

Ideas ranging from strong demand to the threat to workers in West Africa, the top producing region, from the fatal ebola virus have been raised as reasons behind futures' latest rise in prices.

However, the bank flagged improved expectations for world cocoa output in 2013-14, thanks to stronger-than-expected Ivory Coast production, and the boost to prospects from the waning expectations of an El Nino weather pattern, which typically causes dryness in West Africa.

"All in all, we see few reasons why the rapid uptrend in cocoa quotations that has now been in place for a full year should continue unabated.

"The scarcity of cocoa beans is not as severe as temporarily feared, and as the likelihood of an El Ni£o effect declines, prospects for the next season are growing brighter," although prices should "remain elevated" thanks to structural problems in many producing countries.

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