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ABN backs ideas of arabica stocks drawdown, even as it cuts ag price hopes


ABN Amro joined commentators highlighting a fall in exchange inventories as a potential support for arabica coffee futures, even as it lowered its price forecast for the bean, and for many other ags too.


The bank said that “tightening” stocks of arabica coffee held for delivery against New York futures would “help to underpin conditions” in the market.


The comments follow an assessment from Rabobank than a “decline in certified stocks”, combined with concerns over Central America’s washed arabica output, “will likely support the market”.


Marex Spectron forecast roasters turning to exchange stocks, in the face of a world arabica coffee production deficit in 2019-20 which it pegged at 5m bags.


Data from the Ice exchange indicate an acceleration in the pace of inventory decline, showing stocks as of Thursday at 2.28m bags – down 28,063 bags in two days, and taking the drawdown for September to 49,082 bags.


‘Oversupply will remain’

ABN made its comments even as it reduced its forecasts for New York arabica futures by up to 7 cents, now seeing them end 2019 at 103 cents a pound, on a nearest-but-one contract basis, and finish 2020 at 106 cents a pound.


Both forecasts remain below levels investors are factoring in, with the bank saying that arabica “oversupply will remain, which will keep prices soft”, foreseeing that “Brazilian coffee supply will remain high”.


The prospect of dwindling, but still significant, inventories was one ABN saw repeated through the agricultural commodities complex, saying that “although the high stock levels will decline somewhat, the upside potential of most prices seems to be limited”.


In that sense, agricultural commodities “show a mixed picture”.


‘Swing into deficit’

For raw sugar, the bank said that the production balance will “swing into deficit” in 2019-20, a factor that “will underpin prices.


“But worries remain on relatively high stock levels, and a potentially significant increase of Indian exports,” ABN agricultural commodities economist Casper Burgering said.


The bank cut its forecasts for New York prices by up to 0.24 cents a pound, seeing them end this year at 13.05 cents a pound and 2020 at 13.59 cents a pound, again on a nearest-but-one contract basis.


These figures are comfortably ahead of the futures curve.


‘High availability’

Also among soft commodities, the bank cut its forecast for New York cocoa futures by up to $187 per tonne, seeing them end 2019 at $2,370 a tonne on a nearest-but-one contract, and finish next year at $2,525 a tonne.


That signals expectations of a significant dip in prices short-term, but of values for late 2020 above those investors are factoring in.


“The upside for price is low on high availability,” Mr Burgering said, noting that 2018-19 at least was expected to have shown a production surplus.


Corn price outlook

Among grains, ABN was less downbeat on corn, despite cuts to price forecasts of up to $0.66 a bushel.


Nonetheless, its forecasts for Chicago futures ending this year at $3.95 a bushel and 2020 at $4.15 a bushel were roughly in line with market expectations, taken on the price of the second-in contract at these times.


“For 2019-20, lower production is expected and demand will remain stable,” dynamics implying “lower ending stocks.


“Prices will find some support on this,” Mr Burgering said.


‘Prices will rise’

For soybeans, ABN raised its price forecasts, by up to $0.16 a bushel, seeing second contract values ending this year at $9.05 a bushel and 2020 at $9.40 a bushel.


“Crops will decrease, while demand will rise, mainly from the food sector,” meaning that “prices will rise in the next season,” albeit with increases already factored in by investors, in fact to a slightly more generous level than the bank is expecting.


For wheat, the bank’s price forecasts – cut by up to $0.50 a bushel, to $4.78 a bushel for the close of this year, and $5.05 a bushel for the end of 2020 – were also downgraded below the futures curve.


“In 2019-20, a record [world] harvest is expected and ending stocks will increase.


“This means that prices will remain soft.”

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