Brokers, while cutting expectations for agricultural commodity values this year, still forecast some appreciation, making only limited downgrades to prices outlooks.
Commentators such as ABN Amro, Citigroup and Commerzbank expect, on average, agricultural commodity prices in the October-to-December quarter to show 1.5% growth compared with the same period of 2019, according to FocusEconomics.
That is lower than the 2.6% growth previously expected, with the downgrade reflecting the coronavirus outbreak which has raised fears of consumption setbacks including a “marked downturn in global demand for biofuels in the wake of a dive in crude oil prices”.
Nonetheless, expansion in agricultural commodity prices is expected to be larger than that in previous metals, for which the year-on-year growth forecast was downgraded to 0.6%, while for energy, brokers now see “prices diving 21.7% annually”, compared with forecasts a month ago of a 0.8% dip.
Precious metals are seen as being the top commodities performer this year, with forecasts for price growth raised to 7.2% from 4.8%.
In ags, “higher prices should be supported by still-healthy demand for animal feed, rising feedstock production for biofuels and sustained supply concerns,” FocusEconomics said.
Grain price outlooks
Consensus forecasts for grains saw only modest downgrades month on month, leaving the outlooks well above those investors are pricing in, with the estimate for corn prices in the October-to-December quarter trimmed by $0.06 a bushel to $3.80 a bushel.
December futures were trading on Thursday at $3.61 ¼ a bushel.
For soybeans, the consensus forecast for average fourth-quarter spot prices was reduced by $0.11 a bushel to $9.43 a bushel, remaining well above the $8.50 a bushel investors were pricing in to the November contract.
“Our panellists see the price of soybeans rising this year, partly on US-China trade talk progress,” FocusEconomics said.
And for wheat, while the consensus price forecast was reduced by $0.08 a bushel to $5.25 a bushel, it remained in line with the futures curve.
“Prices are expected to pick up slightly going forward, as more clarity over the virus outbreak, and consequently wheat demand, brings prices closer to fundamentals.”
‘Prices should increase’
For soft commodities, there was only a limited downgrade to the expectation for cotton prices in the fourth quarter, cut by 1.5 cents a pound to 68.0 cents a pound – well above the 56.78 cents a pound being priced into New York’s December contract.
“This year, prices should increase from current levels due to healthy demand and flooding in some parts of the US, which could tighten supply,” the analysis group said.
For arabica coffee, a 3 cent cut to 114 cents a pound in the fourth-quarter price forecast left it in line with the level that investors are pricing in.
Values should “remain relatively weak due to a moderating global growth outlook,” FocusEConomics said, adding that “uncertainty over future demand - specifically from Asia a key source of global coffee demand growth - poses a risk to prices”.
On raw sugar, meanwhile, analysts kept their four-quarter price forecast at 13.9 cents a pound – implying a huge recovery ahead, with New York’s March 2021 contract trading on Thursday at 11.27 cents a pound.
Sugar prices have been hurt particularly badly thanks to their links to the energy market via ethanol, with which the sweetener competes for cane, with fund shrinkage of a large net long position in the contract adding to the pressure.
“Prices are expected to recover somewhat this year due to tight supply in India and Thailand, although oil price volatility clouds the outlook,” FocusEconomics said.
For cocoa, while the fourth-quarter price forecast fell by $37 to $2,502 a tonne, it remained well above the level markets are factoring in, with the December lot trading at $2,221 a tonne.
The forecasts were, however, compiled before the latest downgrades by Goldman Sachs, which earlier this week lowered its price forecasts for a range of agricultural commodities, including corn, for which it recommended a short bet.
The investment bank’s corn price forecast for a six-month horizon, for instance, was lowered to $3.40 a bushel, from $4.10 a bushel - taking it well below a forecast from JP Morgan.