Phillip Futures backed widespread expectations of cocoa
market strength, but broke with other commentators by issuing a "bullish" call
on soybeans, for the early months of 2014 at least, citing strong demand.
The Singapore-based broker concurred with consensus ideas
that agricultural commodities, overall, face price pressure, putting the "oversupplied"
arabica coffee and raw sugar markets among its bearish calls.
However, it was more upbeat on prospects for soybean prices,
which many other brokers see facing imminent pressure from a decent South
American harvest, which is looking increasingly likely, given largely
favourable weather so far in the Argentine and Brazilian growing seasons.
"Robust consumption of soybeans will provide the support to prices
that is likely to prevail," Phillip Futures said.
'Ramp up imports'
While backing expectations of strong soybean production, the
broker flagged the boosts to demand from, in particular, China, the top
importer of the oilseed, where consumption is expected to rise by 4.4% in
"Coupled with many
Chinese entering the middle class and rapid population growth, domestic
consumption of soybeans in China can be expected to further increase," Phillip
"Therefore, we can also expect China to further ramp up
soybeans imports to meet the likely increase in consumption."
However, consumption in other emerging markets is likely to
rise too "with increasing wealth effects from a global economic recovery," the
"Stronger consumption would result in an increase in demand
for US soybeans, providing support to [Chicago] prices."
Furthermore, in the US, an increasing amount of soyoil -
with soymeal, one of the two main soybean processing products – is being used
for making biodiesel.
"We can expect more demand for soybean oil due to this
increasing trend of biodiesel consumption, especially stemming from soyoil
usage, and that translates to higher demand for soybeans, which will support
Seasonal factors are in favour of rising soybean prices too,
with February the best month, in the past decade, for futures rises, with
average increases of nearly 6%, ahead of June, December and April.
"If we go by seasonality, we can expect soybeans prices to
go up in January and February."
September, July and August are the major months for price
'Worsening the supply
Phillip Futures also placed a "bullish" call on cocoa
futures for the first quarter of 2014, citing the production deficits in
2012-13 and 2013-14 also highlighted by other brokers.
"With a tight cocoa market that is plagued with supply
deficit and robust demand, we are bullish on cocoa," the broker said.
"It is unlikely that the cocoa market will see the light at
the end of the tunnel anytime soon as demand is expected to grow while
production remains sluggish, further worsening the supply deficit situation."
A strong start to arrivals of beans in Ivory Coast ports
looks set to peter out as the impact of previous weather setbacks feeds
through, while demand is being spurred by Asia's growing taste for chocolate,
of which China will raise consumption by 6.6% this year, according to Euromonitor.
"China is currently a huge untapped market and as China
grows economically, we can expect China to be a major threat that may further
worsen the supply shortage situation of the cocoa market," Phillip Futures