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Agriculture misses out on growing optimism over commodity prices

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Hopes for agricultural commodity prices have nudged higher, but not by as much as those for other raw materials, with commentators notably downbeat on prospects for cocoa and wheat futures.


Analysts have raised estimates for energy prices, as of the October-to-December quarter of 2018, by 1.1% over the past month, amid “expectations of higher prices for crude oils” after Opec motevs to curb output, FocusEconomics said.


For base metals, expectations for prices in the last quarter of next year were raised by 2.3%, thanks to the impact of output cuts in China, amid environmental clampdowns, at a time when a “still vibrant housing market” in the country is supporting demand.


However, for agricultural commodities, the forecast for prices in a year’s time was raised by just 0.3%, FocusEconomics said, adding that “Surging supply for a number of agricultural commodities is keeping prices subdued”.


‘Tinged by complacency’


The comments come at a time of growing talk of cash switching into raw materials, amid some caution over whether record high equity prices are sustainable, and a focus on the appeal of commodities as a hedge against a potential revival in inflation rates.


The Bcom commodities index on Monday touched an eight-month high, helped in particular by recovery in oil prices.


However, the Bcom agriculture sub-index has underperformed other raw materials, remaining within 3% of an eight-year low reached in August.


Separately on Thursday, Ann Berg, a former director at the Chicago Board of Trade, said that record-high share prices had “seemingly had negligible effects” on agricultural commodity prices.


“All in all, [agriculture] markets could be characterised as rather featureless, tinged by complacency,” she said, in the United Nations twice-yearly Food Outlook report.


Wheat price forecasts


Wheat is among agricultural commodities in which investors remain particularly downbeat, seeing Chicago prices averaging $4.92 a bushel in the last three months of 2018.


While up $0.12 a bushel month on month, the figure is below the $5.04 ½ a bushel at which investors were pricing December 2018 futures on Thursday.


World wheat output forecasts for 2017-18 “have been revised upwards in recent months”, FocusEconomics said, if adding that production was “still set to be slightly lower than in 2016-17, partly due to a smaller planted area in the US and a drop in Australian wheat production”.


‘Significantly lower shipments’


For cocoa, analysts also forecast prices well below those the market is betting on, despite upgrading their guidance for late 2018 by $18 month on month to $2,072 a tonne.


December 2018 cocoa futures were on Thursday trading at $2,221 a tonne in New York, amid a rally spurred by ideas of firm demand, stoked by Barry Callebaut results, at a time of growing concerns over supplies in Cote d’Ivoire, where rains are said to be slowing the harvest and encouraging the spread of disease.


“Exporters are reporting significantly lower shipments to the ports,” Commerzbank noted separately on Thursday.


“For the entire quarter until the end of December, exporters envisage a crop volume of 830,000 tons, which would be 108,000 tons less than in the same period last year.”


‘Switch to more profitable crops’


However, broker retain an upbeat assessment of Chicago corn futures, despite cutting their forecast for prices in the last three months of 2018 by $0.12 a bushel to $4.13 a bushel, FocusEconomics research showed.


That remains above the $3.94 ¼ a bushel being priced into December 2018 futures.


“Corn prices should rise from their current low level, as a poor outlook for profits could encourage some producers to switch to more profitable crops,” said FocusEconomics, whose data is drawn from forecast by the likes of Australia & New Zealand Bank, Societe Generale and Itau BBA.


‘Shortened supply’


Similarly, in arabica coffee too, analysts trimmed hopes for New York prices, by 6 cents a pound to 145 cents a pound, but kept the consensus outlook above the futures curve.


“Shortened supply will likely support prices ahead of next year’s harvest, and improved global demand is expected to moderately lift prices through 2018,” FocusEconomics said.


For raw sugar, the forecast for prices in the last three months of next year was trimmed by 0.03 cents a pound to 15.5 cents a pound, marginally above the futures curve.


“Despite higher EU production due to the recent lifting of quotas, prices should drift up slightly, as low prices tempt producers to divert more sugar cane to ethanol production.”

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