Rabobank issued "bullish" calls on arabica coffee and sugar
prices, and was somewhat upbeat on soybeans too – but remained cautions on
grain values, despite upgrading hopes for Chicago wheat futures.
The bank - while slashing its forecasts for New York-traded
raw sugar futures by up to 3.0 cents per pound, on a quarter-average basis –
left the estimates largely above the depressed levels that investors have sold
down the market to, amid hopes for Brazil's cane harvest and a return to a
world output surplus.
The forecast for average prices in the last three months of this
year, for instance, at 13.9 cents a pound, was above the 13.05 cents a pound
that October futures were trading at on Monday.
'Sugar prices to regain
"We believe prices will not sustainably remain at lower
levels," Rabobank said, factoring in resilient values in China, the top sugar importing
country, where the premium of Zhengzhou white sugar futures earlier this month
touched $585 a tonne over the London contract, a record on data going back to
Furthermore, prices have reached a low enough level for some
Brazilian mills to process cane into ethanol rather than sugar, stemming output
of the sweetener, at a time when investors may be overconfident over supplies.
"Current [sugar] prices have not built in much of a
supply-related risk premium," Rabobank said.
"We expect sugar prices to regain some ground from their
current levels," although a revival "might take several more weeks".
'Rebuild of the quality
For arabica coffee, the bank also cut its forecasts for New
York futures, by up to 10 cents a pound, but to levels above those investors
are banking on.
The forecast for prices at 135 cents a pound in the last
quarter of this year, for instance, was above the 127.90 cents a pound at which
December futures were priced at on Monday.
The bank flagged that reports from the Brazilian harvest "suggest
that the excellent yields seen last year are unlikely to be repeated", with the
crop scoring below-average on quality factors too.
"We believe there will be a rebuild of the quality premium
Indeed, Rabobank added that it was turning a "little bearish"
on robusta coffee, generally seen of lower quality, but whose discount to
arabica beans last week narrowed to its lowest since at least 2008.
For robusta beans, the bank downgraded its price forecasts
by up to $20 a tonne, taking its fourth-quarter estimate to $1,980 a tonne, below
the $2,059 a tonne the market was pricing in to November futures.
'Much more bad news will
Also among soft commodities, the bank stuck with cocoa price
forecasts a little above the futures curve, saying that the drop in futures
near to decade lows had left the market "oversold".
However, in grains, Rabobank was less upbeat on prospects
for a recovery in prices, saying that while 2017-18 "might be the first season
since 2003-04 when global stocks of most major grains and oilseeds decline…
much more bad news will be required to spark a severe price rally".
It stuck with a forecast for Chicago corn futures of $3.65 a
bushel for the October-to-December quarter, below the $3.76 ½ a bushel at which
December futures were trading at, noting weak Brazilian prices and "favourable"
conditions for the US crop.
That said, the potential for weather setbacks spurred the
prospect of a "period of increased price volatility".
'Stocks might only
For Chicago wheat, the bank raised its price forecasts by up
to $0.25 a bushel, but kept them a touch below the futures curve, seeing them
average, for instance, $4.80 a bushel in the last three months of this year.
The December contract was priced at $4.89 ¾ a bushel on Monday.
While prospects for the US hard red spring wheat have
deteriorated markedly, and "some yield losses" have beset crops in the European
Union and former Soviet Union too, "global [wheat] stocks might only shrink
marginally in 2017-18, if at all".
"Despite the various regions that face production issues, we
do not yet see a big enough concern to expect a further significant bullish move
in Chicago or Paris wheat, and therefore keep our wheat price forecast below
the current forward curve."
On soybeans, by contrast, while the bank trimmed its price
expectations by up to $0.40 a bushel, ideas of futures averaging $9.40 a bushel
in the first three months of 2017 was a little above the $9.29 ¼ a bushel investors
are pricing in.