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SocGen sees scope for robusta, soy price gains - but cotton a 'sell'
By Mike Verdin - Published 16/03/2017

Societe Generale forecast rises ahead for soybean and robusta coffee futures, even as it flagged the potential for benefiting from short bets on arabica beans, while rating a sell on cotton as one of its top bets.

The bank hiked by $0.85 a bushel to $10.50 a bushel its forecast for Chicago soybean futures as of the October-to-December period, an estimate well above the futures curve.

November futures were on Thursday trading at $9.97 a bushel.

The forecast reflected expectations of further growth in Chinese imports of the oilseed in 2017-18, of 3m tonnes to a record 90m tonnes, fuelled by demand from hog producers enjoying "higher profit margins".

Corn vs soybean sowings

And this after a 2017 US soybean harvest which may not prove as big as had been thought, with SocGen cutting its estimate for sowings this year to 86.4m acres below its previous figure of nearly 90m acres and the US Department of Agriculture forecast of 88.0m acres.

Allendale this week pegged the figure at 88.825m acres, while Informa Economics has pegged sowings at 88.02m acres.

"We expect weakness in soybean prices in the near term to impact the US planting intentions," SocGen analyst Rajesh Singla said, seeing farmers keep more area with corn, the major competitive crop in spring sowings programmes.

"Corn is now generating more profit than soybean at the operating profit level and is almost at par on the net income level," Mr Singla said, lifting his forecast for US corn sowings this year by 3.0m acres to 92.0m acres, and trimming forecasts for year-end prices to $3.75 a bushel, a little below the futures curve.

'Severe drought'

For London robusta coffee futures, SocGen introduced price forecasts of $2,249 a tonne for the last three months of the year, rising to $2,315 a tonne in the January-to-March period of 2018.

That compares with the $2,223 a tonne at which November 2017 futures were trading at on Monday, and $2,213 a tonne being priced into the March 2018 contract.

The bank's forecasts reflected a forecast that while robusta coffee output in the top four producers Vietnam, Brazil, Indonesia and India - will recover by 6m bags in 2017-18, that will represent only a partial recovery from the 10m-bag drop the current, weather-affected season.

SocGen forecast a robusta coffee output of 5.3m bags next season, adding that Uganda, the fifth-ranked producer of the variety, "is still suffering from the impact of severe drought and could further tighten the demand and supply situation".

'Shorting opportunity'

By contrast, for New York-traded arabica coffee, the bank cut its price forecasts by up to 22 cents a pound, leaving its estimate for futures in the last quarter of this year at 152 cents a pound, with the prospect for a drop to 145 cents a pound early in 2018.

Indeed, while "neutral" over arabica price prospects for now it said that the "the long end of the arabica coffee curve presents a shorting opportunity" given the likelihood of an increase in Brazilian output next year.

Brazil sees alternate high and low years of arabica output, with SocGen pegging the country's production in 2017, an "off" year, at 39m bags - enough to support a world output surplus in the bean of 3.5m bags.

'Attractive short story'

However, the bank's primary trading recommendation in crops was to "sell rallies" in December cotton futures, terming "unsustainable" the rally which has taken the contract 8.5% higher so far this year to 75.45 cents a pound.

New York cotton futures are up 11.5% in 2017 on a spot contract basis.

"Sales from state reserves in China, improvement in supply from India and record production in Australia are likely to ease the tightness in the cotton export market in the coming months," Mr Singla said.

"In addition, substantial improvement in farmers' profitability is likely to restart cotton acreage expansion across the world," with higher prices supporting spending on seeds and sprays which will "support yields in 2017-18 as well".

The bank, while raising its price forecasts for the fibre a touch, termed cotton an "attractive short story", seeing futures average 70 cents a pound in the October-to-December period.

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