Soybean and sugar prices are poised for gains, with longer-dated
cotton futures looking undervalued too, Societe Generale said, but warned that rallies
in coffee, corn and wheat appear overdone.
The bank raised by up to $1.19 its quarter-based forecast
for Chicago soybean prices, foreseeing them remaining above $13 a bushel in a
That is well above the $12.01-a-bushel level that March 2015
futures were pricing in on Thursday.
The upgrade reflects the strong, if waning, US export pace, the
diminishing forecasts for the harvest in Brazil and, further ahead,
expectations that next year's US harvest will not live up to the expectations
of 3.55bn bushels that officials have pencilled in.
"Our updated supply and demand estimates are less optimistic
than the US Department of Agriculture's, and we expect prices to rise
post-harvest as the projected US stocks-to-use ratio remains below 6% for the fourth
straight year," SocGen analyst Christopher Narayanan said.
The bank forecasts US soybean stocks ending 2013-14 at 126m
bushels and next season at 174m bushels, estimates well below the USDA's.
'We could see prices
For sugar, the bank, which had been bullish on the sweetener
heading into the current rally, lowered its price estimates, counter to the direction
of forecast revisions from many other analysts, given concerns over damage from
drought to Brazil's cane crop.
Selected SocGen softs price forecasts, change on previous and (gap from futures curve)
Coffee, Q4 2014: 156 cents a pound, +46 cents a pound, (-21%)
Cotton, Q4 2014: 85 cents a pound, +4 cents a pound, (+6%)
Raw sugar, Q4 2014: 20.2 cents a pound, -0.8 cents a pound, (+10%)
White sugar, Q4 2014: $563 a tonne, -$21 a tonne, (+16%)
Prices for quarter average ICE spot contract, except for white sugar, which is traded on Liffe
"Strong production and availability of the Thai harvest
should help temper any immediate concerns over the Brazilian crop in the
near-term," Mr Narayan said, noting a 31% jump in Thai sugar output since November
However, with the bank foreseeing a lower production surplus
of 1.0m tonnes in 2014-15," a level that can easily switch to a deficit… we
could see prices rallying in the second half of 2014", and expected to top 20
cents a pound in New York the October-to-December period.
New York cotton futures too by then look set to bet levels
investors are currently factoring in, remaining well above 80 cents a pound on
a quarter-average basis, helped by continued thinness in supplies in the US,
the top exporter.
"Inventories are expected to remain tight, particularly if
the lingering drought conditions threaten production numbers."
Coffee to correct
However, the bank, while hiking its forecast for coffee
futures because of the impact of Brazil's drought, forecast New York arabica prices
correcting to levels of 150-160 cents a pound even into 2015, despite
pencilling in a 10% drop to 35.2m bags in Brazilian arabica production this year.
Selected SocGen grain price forecasts, change on previous and (gap from futures curve)
Corn, Q4 2014: $4.80 a bushel, -$0.02 a bushel, (-1%)
Soybeans, Q4 2014: $13.32 a bushel, +$0.94 a bushel, (+13%)
Soymeal, Q4 2014: $377 a short ton, +$27 a short ton, (+3%)
Wheat, Q4 2014: $6.23 a bushel, -$0.39 a bushel, (-11%)
Prices for quarter average Chicago spot contract
Total Brazilian coffee output was pegged at 50.9m bags.
"We remain optimistic on the Colombian recovery, pegging
production there at 10.4m bags, up 2.5% from our 2013-14 forecast of 10.2m bags,"
Mr Narayan said, flagging too ideas that output in Central America is "stabilising",
after an outbreak of coffee rust.
"While global supplies of coffee are tightening, the recent
volatility in prices is likely to continue to subside and normalise prices in
the second quarter and beyond."
'Risk built in'
And the bank was downbeat on prospects for grain prices too.
For wheat, although the condition of US hard red winter
wheat is declining, "the increase in plantings could help limit the downside to
"We see much of the risk built into current prices."
And while the Crimea crisis has gained much attention, given
that the region accounts for roughly 6% of Ukraine's winter wheat sowings, and a
"negligible" area of corn and spring wheat, "any reduction in grain plantings
in the Crimea, is likely to have a muted effect on Ukraine's total grain