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ABN Amro sees 2018 proving 'more positive' for agricultural commodity prices

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ABN Amro forecast a “more positive” year ahead for agricultural commodity prices, with the likes of wheat, corn and coffee crossing key price milestones, spurred by strong demand, at a time of curtailed output.


The bank said that agricultural commodities are in 2018 “likely to see demand pick up”, helped by reassuring demand prospects in China, a huge buyer of raw materials, and which will in economic terms “avoid a hard landing”.


“Grains will benefit from continuing strong demand from the feed industry in China,” said Nadia Menkveld, ABN Amro senior economist agriculture.


Meanwhile, “demand for tropical commodities”, such as cocoa and coffee, “is notably high in the US and Europe.


“Coffee, in particular, will enjoy growing demand,” Ms Menkveld said.


‘Harvest will be smaller’


This uptick in consumption will come at a time when for some ags, output may decline next year, from 2017 levels boosted by benign weather.


“A repeat of [the] last year’s optimal conditions for cocoa and soybeans is unlikely,” Ms Menkveld said.


“So the [2018] harvest will probably be smaller or of lesser quality.”


For wheat and corn, planted area “is expected to be smaller in 2018, leading to lower harvests of these commodities”.


Producers also had the “unpredictable factor hanging over” output prospects of a La Nina, which has a history of causing undue dryness in some areas, and wetness in others, and potentially able to “create some upward price pressure” for ags.


Grain price gains


Upward pressure on values will be limited by the extent of inventories already built up, with Ms Menkveld forecasting “that there will be no real shortages” of the likes of grains, and that “prices will not rise very far”.


Still, ABN forecast Chicago wheat prices ending next year at $5.00 a bushel, ahead of the $4.74 a bushel being factored in to December 2018 futures by investors, who do not see the $5 mark being breached until mid-2019.


For corn, the bank forecast Chicago futures ending 2018 at $4.00 a bushel, above the $3.81 ¼ a bushel that December futures were trading at on Wednesday.


And for soybeans, a forecast for futures closing next year at $10.50 a bushel was ahead of the $9.85 ¼ a bushel priced in to the January 2019 contract.


‘Bearing less fruit’


For some soft commodities, ABN foresaw price gains too, with New York arabica coffee futures seen returning to 150 cents a pound at the end of September next year – nearly two years before the futures curve sees that psychological level being reached.


“Demand is expected to continue growing,” Ms Menkveld said.


And for cocoa, New York futures were seen ending 2018 at $2,300 a tonne - well ahead of the $1,943 a tonne at which the December 2018 contract is trading at.


“The chance of another record-breaking season for cocoa [production] in 2018 is small, as the weather conditions were ideal last season.


“Moreover, a growing number of trees are becoming relatively old, and thus bearing less fruit.”


No so sweet on sugar


The bank was more downbeat on comments on sugar, saying prices will “remain under pressure, since we’re heading to a supply surplus in 2018” in the sweetener.


A forecast for prices finishing next year at 14.50 cents a pound was behind the futures curve, which suggested an end-2018 values of about 14.80 cents a pound.

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