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Brokers raise ag price forecasts, but economy worries remain

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Brokers raised hopes for growth in agricultural commodity prices this year, raising expectations for values of crops from soybeans to sugar, although keeping an eye on worries over global economic growth.

 

The consensus forecast for 2020 growth in ag prices – as measured by average values in the October-to-December period compared with those a year before – has risen by 0.3 points over the past month to 3.1%, research by FocusEconomics showed.

 

The outlook reflects expectations that “ongoing supply concerns, healthy demand for animal feed and rising feedstock production for biofuels should support agricultural prices this year”, said FocusEconomics, which monitors forecasts from the likes of ABN, ANZ and JP Morgan.

 

‘Frail global growth’

However, the analysis group noted that “frail global growth” was seen as a “major” risk to the outlook.

 

The IMF on Tuesday trimmed its forecasts for world economic growth this year by 0.1 points to 3.3%, and for 2021 by 0.2 points to 3.4%, adding that “there is simply no room for complacency”.

 

For 2021, commentators downgraded to 0.6%, from 1.7%, their forecast for growth in ag prices, with expectations cut for the likes of palm oil and rice.

 

And although end-2020 price forecasts were raised for almost all contracts covered, the revised estimates were often left at, or below, futures curves, implying that investors have already factored in the appreciation expected.

 

‘Sales surpassed expectations’

In Chicago wheat, for instance, commentators raised their forecast for average prices in the last three months of 2020 by $0.26 a bushel to $5.26 a bushel, as the “build-up to the signing of the phase one trade deal between the US and China stoked… expectations of stronger Chinese demand for US wheat.

 

“Moreover, in late December, US commercial wheat sales surpassed market expectations, while in January the US Department of Agriculture reported tighter supply as well as stockpiles for 2019-20 compared to 2018-19”, while also forecasting the lowest US winter wheat sowings since 1909.

 

However, the revised price forecast remains well below the $5.97 ¼ a bushel that investors were on Wednesday pricing in to December 2020 Chicago wheat futures.

 

“Prices are expected to taper going forward, as still-solid supply should exert downward pressure on prices,” FocusEconomics said.

 

‘Supply shortfall’

Similarly, among New York-traded soft commodities, brokers remained less upbeat than investors on prospects for sugar price rises despite raising by 0.4 cents a pound to 13.6 cents a pound their forecast for average fourth-quarter prices.

 

That is will below the 14.55 cents a pound being priced into October 2020 raw sugar futures, and the 14.87 cents a pound at which the subsequent contract, for March 2021, is trading at.

 

FocusEconomics - highlighting a “supply shortfall” in Thailand, viewed as one factor which has supported the recent rally – said that “prices are expected to remain upbeat this year due to tight supply levels”.

 

However, futures “are expected to drop off slightly after recent gains”.

 

‘Diseased crops’

The forecast for New York cocoa too was upgraded, by $73 to $2,509 a tonne, but to levels below those investors are already counting on, with December futures trading at $2,682 a tonne.

 

“Prices picked up over the previous month, as… diseased crops in Ghana forced its supply estimates to fall heavily,” the analysis group said, but added that “this year, prices will likely ease due to strong production in Cote d’Ivoire.

 

“That said, volatile weather conditions remain a key upside risk to prices.”

 

‘Strong demand’

For New York arabica coffee, the consensus forecast rose by 5 cents a pound to 120 cents a pound, after support to prices from a Brazilian supply squeeze, but remained close to the futures curve.

 

“This year, bean prices will likely increase slightly but remain weak by recent historical standards due to ample supply levels,” although “strong demand - specifically from Asia - should narrow the supply gap and support prices”.

 

Cotton, meanwhile, proved one ag for which commentators raised price expectations above the futures curve, with New York prices seen averaging 71.6 cents a pound in the fourth quarter, an upgrade of 2.5 cents, and taking it above a December contract price of 70.94 cents a pound on Wednesday.

 

FocusEconomics flagged expectations of “strong demand from China”, although added that “moderate global growth and robust US supply pose downside risks to prices”.

 

Soybean, corn outlooks

For soybeans, the consensus of Chicago prices trading at $9.57 a bushel in the last three months of 2020 represented a small upgrade, of $0.07 a bushel, but left the price close to where the November contract is trading.

 

“Our panellists expect soybean prices to increase this year, likely in part on US-China trade talks progress, but will still remain subdued by recent historical standards.”

 

For corn, the fourth-quarter Chicago price outlook was trimmed by $0.04 to $3.99 a bushel, also remaining in line with the futures curve.

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