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
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
"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.
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
"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.