Standard Chartered rated soybeans a top bullish bet in agricultural
commodities, foreseeing futures staying at $14 a bushel for most of the next
year, and was upbeat on sugar too, but cautioned over coffee and cotton prices.
The bank, building on comments earlier this month, urged
sugar consumers to "buy on dips" in prices of the sweetener, warning that the dryness
seen in Brazil, the top producing country, and the potential for an El Nino
later in the year, could "undermine" world output.
Indeed, world output could, for the first time in five years,
fall behind production.
"While fundamentals in the sugar market remain accommodative
in the short term, increasing supply risks in the second half of the year and
tight producer margins could boost sugar prices into 2015," StanChart said.
The bank restated forecasts for prices of the sweetener
ending this year at 20.0 cents a pound, and averaging 23.5 cents a pound next
year, well above levels in the low 18s cents a pound that the New York futures
market is factoring in.
'Producers should scale
On soybeans, the bank forecast prices averaging at $14.00 a
bushel for the next five quarters, bar the July-to-September period when
pressure from the US harvest will drive them down to $13.50 a bushel.
That is a far more buoyant picture than presented by Chicago
futures, which see prices falling below $12 a bushel by November, and staying
The upbeat forecast reflected rising production costs, and
growing needs for soymeal in the livestock sector, particularly in the pork
industry, where "the need to rebuild global hog inventories will support meal
Mr Ofon added: "We have reservations with regard to planting
weather in the US and socio-political risks in Latin America and the Black Sea
region," references to the disruptions prompting Argentine farmers to store
crop, and to the Ukraine crisis.
"Soybean producers should therefore scale down forward sales
in anticipation of more attractive prices for the new crop," he said.
However, the outlook for vegetable oil futures was more
downbeat, particularly for palm oil, for which the bank forecast price falls
ahead, even while raising its estimate for average 2013 values in Kuala Lumpur
by 43 ringgit to 2,618 ringgit a tonne.
This compares with a closing price on Tuesday of 2,711 ringgit
a tonne for Kuala Lumpur's benchmark June contract.
"Crude palm oil prices are off their highs of the year as
output improves in South East Asia and demand drops as a result of
competitively priced [vegetable] oils," Mr Ofon said.
"While we still expect firm demand from India, especially if
the oilseed harvest disappoints, the crude palm oil market will face stiffer
competition from [vegetable] oils."
Soyoil will provide particular competition, "in view of
record soybean output in Latin America, higher oil-extraction rates and the
lapsing of the $1-a-gallon blending credit for biodiesel in the US".
'Sell into these
StanChart said it was most downbeat over cotton and arabica
coffee, viewing rallies in both agricultural commodities as overpriced.
"In both cases, our view is that the fundamental balances do
not justify extensions of the recent sharp increases, and we look to sell into
Cotton futures will average 85 cents a pound in the
April-to-June quarter, the bank said, below the 90 cents a pound or so
suggested by May and July contracts on Tuesday.
The bank highlighted a subsidy revamp in China which is
directing support to farmers through direct payments, rather than guaranteed
crop prices which, in cotton, have been pitched at levels well above international
values, prompting a ramp-up in inventories.
"While we still expect global demand for cotton to improve,
policy changes in China may favour the use of domestic stocks, including the
drawdown of some of China's massive inventories, in lieu of imports in 2014," Mr
In coffee, while acknowledging the dent to Brazil's
production from weather deemed by the Commonwealth Agricultural Bureau as potentially
the most severe in more than 50 years, StanChart rated the rally in futures
It saw prices falling back to 150 cents a pound by the
July-to-September quarter, compared with the 180.00 cents a pound which
September futures were trading at on Tuesday.
Indeed, investors may see better gains in London-traded
robusta coffee, for which the bank forecast prices ending the year at $2,150 a
tonne, a little above the futures curve.