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Agricultural commodity rally past its peak, brokers believe


The agricultural commodities rally is past its best, brokers believe, seeing values as due for declines in the forthcoming April-to-June quarter, which will extend to the end of 2021.


Leading commentators, including ABN Amro, Commerzbank and Goldman Sachs, have over the last month raised expectations for prices of all 10 agricultural commodities monitored by FocusEconomics, amid ideas of “stronger demand… as containment measures to control the spread of [Covid-19] fade.


“Moreover, relatively downbeat global supply outlooks for corn and wheat should add some upward price pressure,” FocusEconomics said, noting that the consensus forecast was now for ag prices to average in the October-to-December quarter 4.7% more than a year before.


A month ago, the expectation was for a 1.6% increase year on year.


‘Limit the upturn’

However, the upgraded price forecasts remain below level those being factored in by markets, with FocusEconomics too noting that “more stable supply levels overall will likely limit the upturn” in prices.


For Chicago corn futures, for instance, while the consensus forecast for average second-quarter prices rose by $0.30 a bushel month on month to $4.84 a bushel, with the fourth-quarter estimate nudged higher by $0.08 a bushel to $4.51 a bushel, both remain comfortably below the futures curve.


“Corn prices are seen dipping from their current level this year, as they have likely run ahead of fundamentals,” FocusEconomics said.


“Moreover, Chinese purchases could tail-off somewhat as both demand from the hog industry and domestic production normalise.”


‘Prices should ease’

Similarly for soybeans, also vulnerable to changes in Chinese demand, forecasts quarter-average Chicago prices upgraded by $0.81 a bushel to $13.18 a bushel for the April-to-June period, and by $0.44 to $11.81 a bushel for the October-to-December period, are below those investors are currently factoring in.


July futures on Thursday stood at $13.93 ¼ a bushel, with the November lot at $12.22 ¼ a bushel.


For Chicago wheat futures, meanwhile, although investors nigher higher their consensus price forecast for the fourth quarter by $0.03 a bushel to $5.88 a bushel, the market is not pricing in a fall below $6 a bushel for the duration of the futures curve, which extends to July 2023.


“Prices should ease from their current levels as supply increases.


“That said, stronger demand as the impact of the pandemic fades and less volatile US-China trade relations are upside risks to the outlook.”


‘World production to increase’

Among soft commodities, upgraded forecasts for New York raw sugar of 0.9 cents a pound to 15.2 cents a pound for the second quarter, and 0.3 cents a pound to 14.8 cents a pound for the fourth, also remained below levels markets are suggesting.


“Sugar prices are seen falling from their current high levels by year-end,” FocusEConomics said, noting expectations that “world production is set to increase this year, which should weigh on prices.”


The group added that “a continuation of the current container shortage in India poses an upside risk” to values.


And for arabica coffee too, a fourth-quarter price forecast edged 2 cents higher to 127 cents remained well below levels expected by New York traders, which were on Thursday pricing the December lot at 140.80 cents a pound.


‘Upside risk’

For cocoa too, an upgraded fourth-quarter price forecast of $2,454 per tonne remained some $100 per tonne below the value of the December contract, with a second-quarter estimate of $2,476 per tonne also beneath the futures curve.


And for cotton, while consensus price forecasts rose markedly, by 7.3 cents to 83.9 cents a pound for the second quarter, and by 2.9 cents a pound to 76.6 cents a pound for the October-to-December period, they were shy of the levels traders have been factoring in.


The July lot was on Thursday priced at 87.30 cents a pound, and the December contract at 83.50 cents a pound.


“Prices are expected to lose ground following such a sustained surge recently, although downward revisions to production pose an upside risk.”

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