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Brokers optimistic on ag prices, despite coronavirus cuts to forecasts

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Brokers remain upbeat on price prospects for many ags over the rest of the year – with sugar a notable exception - despite deepening their expectation for losses over 2020 as a whole.

 

Market forecasters have cut outlooks for many contracts, including corn, soybeans and sugar, over the past two months, and now sector prices to “plunge” by 5.7% year on year, as measured by their average in the fourth quarter of 2020 as compared with values in the same period of last year.

 

Coming into 2020, before the coronavirus pandemic, expectations had been for a 2.8% increase, according to research by FocusEconomics, which draws on forecasts from the likes of ABN Amro, Commerzbank and Goldman Sachs.

 

“Faltering demand for perishable food products and animal feed will likely weigh on prices” of many crops, FocusEconomics said.

 

‘Fastest pace in 16 months’

However, despite the latest downgrades, commentators foresee a recovery in many contracts in the second half of 2020, seeing Chicago wheat futures, for instance, average $5.26 a bushel in the October-to-December period.

 

That is above the $5.06 ¾ a bushel that investors were on Wednesday factoring into the December contract, although FocusEconomics cautioned that “relatively healthy global supply” poses a downside risk to values.

 

For soybeans, in which fourth-quarter price expectations were trimmed by $0.13 a bushel to $8.81 a bushel, that remained some $0.10 a bushel ahead of the value of the Chicago November contract.

 

“US exports of soybeans to China increased at the fastest pace in 16 months in the first week of June, according to the USDA, and continued rising in the second week of the month,” the analysis group noted, flagging too expectations that “the price of soybeans is seen rising towards the end of this year.

 

“However, coronavirus-related demand concern, coupled with US-China trade policy uncertainty, will cap gains.”

 

‘Prices should recover’

Among New York-traded soft commodities, an arabica coffee price forecast of 113 cents a pound in the October-to-December period, while trimmed by 3 cents a pound, remained well above the 97.75 cents a pound at which the December lot is trading.

 

“Prices should recover somewhat before year-end due to a rebound in demand,” FocusEconomics said, if adding that “stronger output from Brazil poses a downside risk to prices”.

 

And for cotton, brokers raised their price forecast by 2.7 cents a pound to 63.4 cents a pound, taking it further above the futures curve, with the December contract trading at 59.16 cents a pound.

 

The group noted a boost from “improving demand conditions”, as Covid-19 lockdowns are relaxed.

 

‘Key upside risk’

For cocoa too, forecasters raised price expectations further above the futures curve, with the $2,369 a tonne New York spot futures are now seen averaging in the fourth quarter, an upgrade of $66 a tonne, ahead of the $2,248 a tonne the December lot is trading at.

 

“Volatile weather conditions remain a key upside risk to prices.”

 

By contrast, for raw sugar, the fourth-quarter price forecast was cut by 0.3 cents a pound to 11.8 cents a pound, taking it below the futures curve.

 

“Prices are not expected to rise far beyond the recent recovery, partly due to a bumper crop in Brazil and weak demand due to the global economic downturn,” FocusEconomics said.

 

Corn debate

For corn, the fourth-quarter forecast for spot Chicago prices was trimmed by $0.14 a bushel to $3.41 a bushel, in line with the price the December lot is trading at – albeit with a marked contrast in expectations between commentators.

 

Goldman Sachs’ forecast for prices at $2.90 a bushel compred with a Commerzbank forecast of $3.91 a bushel.

 

“Concerns over demand for corn, particularly when it comes to its use in ethanol production, eased in recent weeks due to stronger US corn export data.

 

“Unfavourable weather conditions in Brazil is likely weighing on corn production for this season, and is likely also bolstering prices somewhat.

 

Nonetheless, with a record US harvest expected, “corn prices should remain relatively weak this year, as ample US supply and bearish demand prospects keep prices depressed”.

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