Rabobank amplified ideas on the revival in soft commodities
in the second-half of the year, ditching ideas of a flat performance by sugar
futures and steepening the rebound it expects in cocoa prices.
The bank - which had forecast that soft commodities would
put in a firm end to 2013, contrasting with a weak finish by grains –
maintained its forecast for New York cotton futures to average 85 cents a pound
in the last quarter of 2013, up 9% from the first quarter.
On other soft commodities, it accentuated the idea of a
recovery, notably for sugar, in which it raised its estimate for fourth-quarter
prices, while lowering hopes for futures early in 2013.
"Our sugar forecast was lower for the first half of 2013 on
expected mill selling, but higher in the second half on anticipated investor
short-covering," the bank said.
Competition for cane
Mills in both Brazil and Thailand, the top two exporting
countries, are "undersold", the bank said, implying delayed selling pressure
yet to be released on to futures already suffering under the weight of three
successive seasons of production surplus.
And the prospect of "another surplus in 2013-14 suggests
prices need to encourage growers to reduce output", the bank added.
However, the surplus will be limited thanks to a switch in
cane producers to making ethanol, rather than the sweetener, which will become
apparent as the Brazilian crushing season unfolds, encouraging hedge funds to
close short positions.
Managed money, a proxy for speculators, hiked its net short
position to more than 25,000 lots in the week to last Tuesday, the biggest on
Rabobank - forecasting that ex-mill Brazilian ethanol prices
will average R$1.27 a litre in 2013-14, equivalent to 18.8 cents a pound in
sugar terms – estimated sugar attracting 46% of cane harvested in the country's
key Centre South region in 2013-14, down 3.5 points year on year.
For New York arabica coffee futures, the bank dropped its
price forecasts throughout 2013, but in particular for the first two quarters.
"As the Brazilian harvest begins, we anticipate
short-covering to result in a modest uptick in New York prices," with the
outbreak of disease in Central America also boosting price sentiment.
Estimates for London robusta prices were left unchanged,
underpinned by an estimate of a 7% drop in output from Vietnam, the top
producer of the bean variety.
In cocoa, Rabobank cut its forecasts for prices near-term,
citing pressure from producer hedging ahead of West Africa's mid-crop.
However, market dynamics for the second half of the year,
"are more supportive", as selling from producers dries up, while grindings rise
sufficient to leave a cocoa market deficit of 43,000 tonnes for 2012-13.