Phillip Futures 'bullish' on soybean, cocoa prices

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 2013-14.

 "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 Futures said.

"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 broker said.

"Stronger consumption would result in an increase in demand for US soybeans, providing support to [Chicago] prices."

'Higher demand'

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 soybean prices."

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 falls.

'Worsening the supply deficit'

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 said.

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