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Brokers downgrade ag price forecasts, ditching ideas of 2019 gains


Brokers have slashed expectations for gains in agricultural commodity values this year, reflecting downgraded forecasts for prices of the range of contracts, with expectations for 2020 reduced for many too.


Commentators such as Commerzbank, Goldman Sachs and Itau BBA monitored by FocusEconomics now expect agricultural commodity prices to average 1.8% lower in the newly-started October-to-December quarter, compared with the same period of 2018.


That forecast is “well below the 6.1% rise previously projected”, FocusEconomics said, attributing the sharp decline in sentiment to ideas of “ample supply for key agricultural commodities”.


It would also represent a reversal of most of the gains achieved in 2018, on the group’s analysis, although on some other measures the sector proved negative for investors then too.


The Bcom Ag subindex, for instance, which is currently down 6.0% for 2019, is on course for what would be a third successive year of decline.


‘Prices to recover’

For 2020, FocusEconomics said its panel of forecasters, expecting “prices to recover ahead”, was expecting a 3.5% gain in values, compared with a previous estimate of 1.7% headway.


However, given the lower expectations for the end-2019 comparator, that revision still disguised downgrades to price forecasts for many contracts.


Of the 10 agricultural commodities covered, five suffered downgrades to price forecasts the last quarter of 2020, with only one, soybeans, seeing an upgrade.


For 2019, six contracts saw cuts to their price forecasts, with only soybeans, again, seeing an upgrade – and even then, to levels below those markets are factoring in.


‘Prices to decline’

For soybeans, the consensus price forecast for the October-to-December quarter of this year was nudged higher by $0.09 a bushel to $9.09 a bushel, with that for the same period of 2020 raised by $0.10 to $9.27 a bushel.


However, both forecasts remain below the futures curve, with Chicago’s November 2019 contract trading on Wednesday at $9.25 ½ a bushel, and the November 2020 lot at $9.71 a bushel.


“Our panellists expect soybean prices to decline slightly in the short-term on the back of the ongoing US-China trade war,” FocusEconomics said.


‘Downward pressure’

Chicago corn futures attracted sharp downgrades, of $0.32 a bushel to $3.91 a bushel for the consensus forecast the last three months of 2019, and of $0.15 a bushel to $4.05 a bushel for the same period, although both of these forecasts are close to market levels.


FocusEconomics said that commentators believe “prices should rise slightly, driven by strong food, feed and industrial demand.


“A continuation of the US-China trade war will cap price gains, however.”


Wheat received smaller downgrades, but to levels of $4.81 a bushel for the fourth quarter of this year and $4.77 a bushel for the same period of 2020.


Both of these prices are well below market expectations, with Chicago December 2019 futures trading at $4.99 ¼ a bushel, and December 2020 ones at $5.34 a bushel.


“Higher output levels will exert downward pressure on prices,” the group said.


’Key upside risk’


The main New York soft commodities – cocoa, coffee, cotton and raw sugar – all received price forecast downgrades, with expectations for cocoa futures cut by $46 a tonne to $2,372 a tonne for the last three months of this year.


That is well below the $2,432 a tonne being priced in to the December 2019 cocoa contract, although investors remained a bit more optimistic in expectations for late-2020 values.


For then, a price forecast of $2,450 a tonne, while trimmed by $12, was above the $2,398 a tonne the market is valuing the December 2020 lot at.


“Prices are expected to fall due to ample supply in Cote d’Ivoire,” said FocusEconomics, but added that “volatile weather conditions and crop diseases in West Africa remain a key upside risk to prices”.


‘Supply glut’

For the other softs too, price forecasts, while reduced, remained at or above the levels markets are factoring in.


For coffee, forecasts of 108 cents a pound for the fourth quarter of this year, and 115 cents a pound for the same period of 2020, compare with market prices on Wednesday of 96.15 cents a pound for the December 2019 lot, and 109.00 cents a pound for December 2020.


“Bean prices will likely remain anaemic by recent historical standards due to the supply glut, but should still pick up slightly from current levels, supported by growing demand from Asia.”


For raw sugar, a price forecast for the current quarter slashed by 0.7 cents a pound to 12.8 cents a pound remained ahead of the 12.50 cents-a-pound level the spot, March 2020 contract is priced at.


A forecast for late-2020 of 13.5 cents a pound was in line with the futures curve.


Prices should rise “in 2020, partly on weaker projected production in Brazil and India”, the group said.


‘Likely rise modestly’

Cotton attracted price downgrades of 3.2 cents a pound for late-2019, for which an average price of 65.4 cents a pound was forecast.


For the fourth quarter of 2020, New York spot futures were seen averaging 70.6 cents a pound, a downgrade of 1.6 cents a pound on last month’s figure.


Both price estimates remained above market levels, with the December 2019 trading on Wednesday at 61.50 cents a pound, and December 2020 at 64.12 cents a pound.


“Prices will likely rise modestly from current levels due to stronger demand, although ample global supply will limit any gains,” FocusEconomics said.

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