Cotton is the best bet among soft commodities for 2018, with the prospect of a “more bullish price trend”, and sugar the worst - although even here there is scope for price gains, Rabobank said.
The bank, in its annual briefing on year-ahead agricultural commodity values, rated cotton as having the third best price outlook in the complex, behind corn and lean hogs, as reported elsewhere on Agrimoney.
The bank forecast New York futures prices averaging 65 cents a pound in the current, October-to-December quarter, on a spot contract basis, “under pressure” from “heavy” inventories, with stocks outside China, whose supplies are not available to the world market, forecast rising by 10m bales over 2017-18.
However, futures prices will recover to average 72 cents a pound in the last quarter of next year, as weakened farmer profitability cuts sowings in 2018-19 in major producing countries including the US, where area was forecast dropping by 1.2m acres.
‘More bullish price trend’
“A more bullish price trend is expected to emerge in late 2018, driven by strong global consumption and stock erosion,” Rabobank said.
World inventories, including China’s, will drop by 10m bales to some 79m bales in 2018-19, which starts in August next year.
The forecast factored in a an expectation of a 4.3% drop in global sowings, and a 2% rise in demand, led by South East Asia, which includes the growing Vietnamese textiles industry.
Prices will also be supported by the prospect of the ending in 2019-20 of China’s destocking drive, likely to herald a upswell in import demand.
‘Much lower sugar’
By contrast, for raw sugar, the bank cautioned of some outstanding pressure from a reluctance among some producing countries to cut output, despite prices which are below the cost of production in “many” nations.
“We expect a muted supply-side response, given the level of protectionism in areas like the European Union, Pakistan, China and India.”
Still, in Brazil, the top sugar producer and exporter, an output drop is “likely” in the key Centre South region in 2018-19, thanks in part to the prospect of a reduced cane harvest, thanks to a higher rate of replantings, but also the switch by mills to producing more ethanol.
If sugar remains less lucrative, “we will likely see a much lower sugar mix [in output], as mills will favour ethanol production,” the bank said, noting too a weak level of forward hedging by producers.
Nonetheless, the bank forecast New York raw sugar futures prices rising to 15.6 cents a pound in the last three months of 2018, up from 14.7 cents a pound expected for the current quarter.
Coffee stocks decline
The bank rated coffee as a marginally more bullish bet, forecasting a world production deficit of 4.7m bags for 2017-18, “split evenly between arabica and robusta”, above an output surplus of 3m bags forecast for next season.
In fact, the bank forecast Brazil having a record harvest to 59m bags next year, comprising 42.4m bags of arabica beans and 16.6m bags of robusta, although flagging potential setbacks such as dry weather in some major growing states such as Espirito Santo.
However, this will follow a period of destocking in importing countries, which inventories in non-producing nations forecast falling by 3m-4m bags from record levels above 26m bags reached in September.
The bank forecast arabica futures averaging 134 cents a pound in the last quarter of 2018, up from 130 cents a pound expected for the current quarter.
Cocoa futures, meanwhile, were given a mildly more bullish rating still, ranking them fifth in the Rabobank table, behind fourth-placed Chicago wheat, with price prospects supported by ideas of smaller bean production in Cote d’Ivoire, by far the top growing country.
A cut to 700 CFA francs in the government fixed price for beans “ill discourage harvesting efforts in the 2017-18 main crop, and will also result in lower fertilizer use for the mid-crop, and next year’s main crop”, the bank said.
It forecast a drop of some 170,000 tonnes to 1.83m tonnes in Cote d’Ivoire output this season.
While still expecting world production surpluses ahead, estimates of 130,000 tonnes for this season, and 60,000 tonnes for 2018-19, “look smaller than they did two months ago”.
Nonetheless, stocks are large enough to “prevent any spikes in prices”, which look like ending next year at around $2,260 a tonne in New York, up $100 year on year on the bank’s forecasts.