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Coffee prices to hit 3-year high - if buyers get more gusto

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Coffee roasters need to show more enthusiasm if arabica futures are to rise to a three-year high next year, as suggested by Commerzbank, broker Price Futures said - as prices hit a two-month low.

Jack Scoville, at Chicago-based Price Futures, highlighted that Commerzbank, "and others", have forecast that arabica futures "could rally well over 200 cents per pound in the coming year, and perhaps over 225 cents per pound".

Commerzbank forecast prices averaging 230 cents a pound in the October-to-December quarter of 2015 – a level not touched by New York-traded arabica futures since early 2012.

However, Mr Scoville, speaking as the best-traded March arabica lot headed to 181.55 cents a pound, its weakest finish since mid-September, also highlighted "quiet cash markets" as undermining prices.

"Buyers of coffee will have to get more animated if the [Commerzbank] forecasts are to come true," he said.

In fact, Brazilian weather forecasts, for now, are proving unsupportive, given that the country's coffee belt, recovering from a historic drought, "does not appear to be an extended dry period now in the forecasts for the next couple of weeks".

Still, while this may support prospects for the 2016 crop, in boosting chances of the vegetative growth next year which bear support cherries harvested the year after, it "will do little to help in 2015", with much drought damage already done.

'Prices should get a lift'

Commerzbank, issuing its price forecasts - which see arabica prices remaining at about 200 cents a pound or above into the July-to-September quarter of 2016 – said that the return of more regular rains to Brazil's coffee-growing areas had helped the latest flowering period appear "not too bad".

However, while ideas that Brazil's next coffee harvest could fall below this year's – pegged by official crop bureau Conab at 45.1m bags, below market hopes pre-drought of a crop as high as 60m bags – "now appear less likely", any output recovery should prove limited

"Most watchers do not expect that production can be lifted well above 2014-15 levels," the bank said.

If weak production forces Brazil to turn to running down inventories from previous harvests "as early as 2014-15, and this continues increasingly in 2015-16, prices should get a lift.

"Nonetheless, we expect a rather moderate upward movement because the previous years permitted the build-up of a sufficiently large cushion of coffee stocks that should prevent a genuine shortage of supply."

'Increasing scarcity'

The bank was also upbeat on sugar values, forecasting New York-traded raw sugar futures rising steadily over 2015 to average 20 cents a pound in the October-to-December quarter, a price level that futures have been held only fleetingly since 2012.

The forecast reflects expectations from the likes of the International Sugar Organization that the 2015-16 season should usher in what "is seen to be the first in quite a number of [world production] deficits".

After all, weak prices "are making investments in the maintenance of cane plantations less advantageous, and this weighs on the medium-term production outlook", besides prompting a "noticeable shift" in cane volumes towards making ethanol rather than sugar.

"We assume that sugar prices will rise as soon as market participants become more aware of the prospect of increasing scarcity," Commerzbank said.

'Prices will not explode'

However, on cocoa, the bank stuck with downbeat price forecasts, seeing futures close 2015 at about $2,200 a tonne, well below the $2,837 a tonne at which New York's December 2015 contract was trading at on Thursday.

"Sufficiently high stocks will ensure that no shortage of supply occurs and accordingly that prices will not explode," as some commentators have suggested.

And Commerzbank lowered its forecasts for cotton futures next year by up to 5 cents a pound, albeit to levels a little above those that investors are pricing in, seeing values end 2015 at about 67 cents a pound.

December 2015 futures are trading at less than 65 cents a pound.

This year's sharp cotton price decline, more severe that retreats in corn and soybean futures, should cut sowings of the fibre next year, with US plantings seen by Informa Economics falling 14% to a six-year low.

"In the southern hemisphere, limitations are to be expected even sooner," the bank said.

"Only when the focus shifts to this fact and an end of the period of numerous surpluses on the cotton market becomes likely do we expect prices to recover."

By Agrimoney.com

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