Commerzbank sounded a sanguine note on soft commodity
prices, seeing some scope for recovery in sugar, and nudging higher its
forecast for arabica coffee values, while saying the cocoa market "should soon
have passed the trough".
The bank lifted by up to 5 cents a pound its forecasts for
quarterly average arabica coffee futures prices, raising the estimate for
values in the first three months of 2018 to 145 cents a pound.
The upgrade took the forecast further ahead of the futures
curve, with March 2018 futures trading on Thursday at 132.80 cents a pound.
And it reflected the prospect of a world coffee production
deficit in 2017-18, dragging carryout stocks to a six-year low on US Department
of Agriculture estimates, and the dryness which has raised questions over
blossoming on Brazilian plantations, ahead of the 2018 harvest.
"While the rainfall in August was advantageous for the
blossom, the chief executive of [Brazil's] largest cooperative Cooxupe is not
alone in warning that it is still too dry for an even blossom and this is
depressing the outlook for next year," the bank said.
And with hedge funds holding a substantial net short
position in arabica coffee futures and options, "we could see substantial price
swings to the upside with short coverings if sentiment turns" more bullish on
However, the bank - flagging that a "complex" coffee pricing
picture also including the likes of large stocks in importing countries, and potential
further weakness in the real, which cuts the value in dollar terms of Brazilian
assets – said that the "scope for price rises remains limited.
"Volatility should remain high, though."
Sugar price outlook
For London-traded robusta coffee, the bank stuck by
estimates of prices averaging $2,000 a tonne in the first quarter of 2018,
ahead of the $1,917 a tonne priced in by March futures, with supplies still
seen feeling the hangover from a poor 2016-17 harvest in top grower Vietnam.
For sugar too, Commerzbank held by price forecasts a little above
current market values, seeing New York raw sugar futures averaging 14.0 cents a
pound in the January-to-March period.
The bank cited the prospect that Brazilian sugar output "will
weaken relative to ethanol production", as the relatively weak price of the
sweetener prompts mills to turn more cane into biofuel instead.
However, it forecast "little upward potential for the sugar…
price for the time being", given broad market expectations of a return to a world
output surplus in 2017-18, besides the dent to prospects from a weaker real.
'Moderate recovery in
For cocoa, meanwhile, Commerzbank forecast "a moderate
recovery in prices in 2018", helped by expectations of weaker production in Cote
d'Ivoire, the top growing nation, were output hit a record 2m tonnes in 2016-17.
Furthermore, "demand has picked up again now amid lower
"Following two years of falling consumption, processing in
2016-17 should have expanded by as much as 3.7%," led by expansion in Africa
"While cocoa is justifiably trading much lower than one year
ago, it should soon have passed the trough," the bank said, forecasting prices
at $2,000 a tonne in the January-to-March period, in line with current values,
and rising to $2,100 a tonne by the end of next year.
The December 2018 contract was on Thursday trading at $2,064