Goldman Sachs raised its forecast for coffee prices, thanks to
a Brazilian drought deemed by Cooxupe as turning beans into "bubble wrap", but
the bank remained downbeat on prospects for agricultural commodity prices.
Goldman Sachs raised by 10 cents a pound its forecast for
New York coffee futures, citing the "hot and dry weather conditions" in major growing
areas in Brazil, the top producer of the bean.
"These weather conditions are expected to impact the 2014 arabica
coffee crop, which was up to now expected to be record large," the bank said.
Indeed, the comments came amid continued reports from Brazil
of crop losses, including in Espirito Santo, Brazil's main area for growing
robusta coffee beans, which was thought to be relatively resistant to dryness
because of more widespread irrigation than other areas.
However, according to state research institute Incaper, producers
are expecting losses of some 20% on a crop originally forecast at 12m-12.5m
'Resemble bubble wrap'
In Minas Gerais, Brazil's main coffee growing state, many
newer planted trees have failed completely, according to Lucio Dias, commercial
superintendent at Brazil-based Cooxupe, the world's largest coffee
"Older crops are still holding on, but smaller ones are
suffering a lot," Mr Dias said.
"The grains resemble bubble wrap, because there is only air
"We are seeing a lot of empty grains, beans and many voids,"
he said, warning that the impact of the dryness would likely be felt in 2015
too, given that branches on which next year's flowers will bud are already
"This drought is unprecedented - we have never had it as dry
in January and February as we are having now," with limited knowledge of the
impact of poor weather at this time of year.
For producers, "the consequences may be worse than they are
Nonetheless, Goldman Sachs left its forecast for corn prices,
at 130 cents a pound on three, six and 12-month horizons, below the futures
"High stock levels after several years of surpluses will
help cushion this production shortfall," the bank said, adding that a one-off short-covering
drive by speculators had likely boosted the revival in prices, which have risen
by 27% so far this year on the Ice futures market.
Indeed, although the bank acknowledged that risks to its coffee
futures forecasts were "skewed to the upside", it remained downbeat on crop
prices overall, foreseeing a 9.0% fall over the next year.
It retained a short recommendation on both old crop soybeans
and Chicago's new crop December corn contract, foreseeing prices of the oilseed
standing at $9.50 a bushel in a year's time, a level not seen since July 2010.
Concerns over emerging market economies only underlined the
prospect of soybean price falls, the bank said.
Goldman's forecasts for wheat, cotton and cocoa futures were
left below the futures curve too, with the bank warning over the fibre that "the
outperformance of prices relative to corn prices will likely support acreage
and production in 2014-15, which will bring inventories higher in 2014", so
weighing on prices.
However, the bank forecast livestock prices holding their
ground over the next 12 months, cautioning that its ideas of Chicago lean hog futures
standing at 80 cents a pound in a year's time, after hitting 100 cents a pound
in the late summer, may prove pessimistic.
A rally in summer lean hog futures lots this year,
attributed largely to fears over the growing extent of US losses to porcine
epidemic diahorrea virus (PEDv), "has taken prices slightly above our price
"The elevated uncertainty around the severity and impact of
the PED virus leaves risk to our forecasts skewed to the upside," the bank
said, also highlighting talk that Russia may this spring lift a ban on imports
of US pork, imposed over the use in America of growth promoting drugs.