Soft commodities look better bets than grains, according to
Goldman Sachs, which flagged the potential for firm demand to lift prices of
cocoa and coffee, while record output dents corn and soybean futures.
The bank - while cutting its price hopes for New York cocoa
futures by $400 a tonne across the board – was more sanguine than investors, seeing
values at $2,200 a tonne in a year's time, compared with the $2,071 a tonne
that the March 2018 contract was trading at on Wednesday.
Goldman acknowledged that weather conditions in West Africa,
the major cocoa-growing region, had been "very supportive of yields", with the
region suffering only a "very mild" iteration of the Harmattan wind – unlike a
However, while soft grinding data too suggest "we are likely
to shift to a sizeable surplus" in 2016-17, the tumble in prices to their
lowest since 2008 will help to revive consumption.
"Given the discretionary nature of cocoa demand we do see
lower prices helping to boost demand, particularly as we continue to move into
the next, expansion, phase of the global [economic] growth cycle," the bank
'Another deficit year'
In coffee too, Goldman said that its forecast of stronger
world economic growth ahead, rising by 3.5% this year and 3.75% in 2018,
combined with "rotation towards the consumer in key emerging markets such as
China, points towards continued strong global demand growth".
This at a time when a hangover from drought may keep robusta
coffee yields in Brazil "depressed for a while longer", with the country's
arabica bean output constrained by it being an "off" year in a cycle of
alternate higher and lower producing years.
"While supply fundamentals look set to improve, we don't
believe that supply will be able to recover sufficiently in 2017-18 to fully
offset the continued growth in demand," making it "another deficit year", the bank
Price risks are "skewed to the upside", it added,
forecasting New York arabica futures at 170 cents a pound in a year's time,
ahead of the 162.00 cents a pound priced in by March 2018 futures.
'Even lower prices
On sugar too, a forecast for New York futures at 22 cents a
pound in a year's time was ahead of the 20.41 cents a pound investors were
plugging into the March 2018 contract.
The bank flagged "underwhelming" output in India, where
drought has cut the cane harvest in Maharashtra, and a hangover to Brazilian
output from "lack of maintenance" in cane crops.
However, Goldman was markedly more downbeat than investors
on prospects for Chicago corn futures, seeing them at $3.35 a bushel on a
12-month horizon, well below the $4.05 a bushel Chicago's March 2018 contract
was priced at.
The bank flagged the need for prices to continue to fall to undermine
sowings and output which have "remained stubbornly high", allowing a continued
rise in world inventories.
"We continue to believe that ultimately even lower prices, at
or slightly below production costs, will be necessary to curtail this supply
growth, assuming normal weather conditions."
Soybeans vs corn
The weakness in corn represents a drag on prospects for
soybeans too, which will find their values depressed by "normalisation" in the
price ratio between the two crops.
Goldman forecast soybean prices in a year's time at $8.85 a bushel
– more than 13% below the value of March 2018 futures on Wednesday – despite the
prospect of continued strong imports by China.
"While we continue to believe that rotation in China towards
the consumer (and hence greater meat, soybean and meal demand) is a structural
trend, we do not believe that the near-term rally in the soybean/corn ratio
will be sustained.
The bank was also cautious on the cotton rally, seeing New
York prices "stabilising at 70 cents a pound" over the next year, rather than rising
to 74.59 cents a pound as shown by the March 2018 lot.
"We see continued competition from man-made fibres, capping
upside in cotton prices," Goldman said, flagging too the potential weight on values
from fresh auctions by China later this year of cotton from its huge state