Cocoa, coffee and sugar prices will revive – but not yet, Commerzbank said, flagging the pressure on prices from coronavirus-damaged demand, at a time of decent output levels.
The bank forecast arabica coffee prices averaging 130 cents a pound in the last three months of next year, well above the 110.60 cents a pound being factored into December 2021 futures, with support to come from a weakened Brazilian harvest.
“Coffee prices are likely to rise in the coming year, with the low yield year in Brazil due in 2021-22,” the bank said.
Brazil, the top coffee-growing country, sees alternate higher and lower producing years, meaning that 2021 is likely to produce a significantly lower crop than this year’s record high, which some have seen reaching as high as 70m bags.
‘Some upside potential’
For cocoa, Commerzbank forecast New York futures averaging $2,600 a tonne in the last quarter of next year, above a December 2021 futures contract price of $2,129 a tonne, assuming “demand development normalise” from pandemic-reduced levels.
For raw sugar, values were seen averaging 15.0 cents a pound - nearly 3 cents a pound above level futures are currently pricing in, and a record would represent the best performance since the second quarter of 2018
“We see some upside potential [for raw sugar prices] for 2021, especially if oil prices rise and supply from the major producing countries possibly declines,” Commerzbank agriculture analyst Dr Michaela Helbing-Kuhl said.
However, shorter-term, the bank saw only limited potential for price gains, weighed by supplies boosted by decent output as well as Covid-19 dents to consumption.
“On the supply side, everything currently points to a high production level, so that any weakness in demand increases the probability of the occurrence of noticeable surpluses,” Ms Helbing-Kuhl said.
“As different as the sugar, coffee and cocoa markets we are looking at are, at the moment the expectation of a less tight supply situation is reflected in low prices,” with only “modest potential” for recovery for now.
For raw sugar, the bank stood by a forecast for prices in the last three months of 2020 of 12.0 cents a pound, comfortably below the futures curve, with March 2021 futures trading at 12.74 cents a pound.
Noting expectations of a marked recovery in Indian output in 2020-21, with some commentators seeing this driving a marked global production surplus, Commerzbank said that “such a surplus would make it difficult for prices to recover significantly”.
For New York cocoa, the bank cut by $300 a tonne to $2,300 a tonne its forecast for average fourth-quarter prices, although this remained more than $150 a tonne above the futures curve.
“The supply of cocoa is estimated to be ample in 2020-21,” Commerzbank said, highlighting that “especially in the most important region of West Africa, recent rains have improved the prospects for the next main harvest from October onwards, giving hope for an early start and good yields.
“In contrast, the development of demand is currently very uncertain, not only because of corona.
“We therefore see only limited upside potential for prices after the sharp decline of recent weeks.”
Arabica vs robusta
For arabica coffee, meanwhile, the bank stood by an expectation for prices averaging 110 cents a pound in the October-to-December period, a little ahead of the 102.85 cents a pound being priced into December futures.
“The high supply, which is meeting with sluggish demand, is making a price recovery after the price decline of recent months more difficult”.
However, the demand hit applied in particular to arabica beans, popular in out-of-home venues such as coffee bars, rather than robusta.
“Arabica coffee is more affected by this than robusta.
“The latter is mainly being processed into instant coffee, which is largely consumed at home.”
For robusta beans, the bank raised its forecast for fourth-quarter-2020 prices by $50 a tonne to $1,250 a tonne, ahead of the $1,210 a tonne that the November lot was trading at.