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Rabobank 'bullish' on soft commodities, and on closing of wheat spread


Rabobank said it was upbeat on the price outlooks for a number of agricultural commodities, citing “bullish” prospects for softs, while in grains forecasting a narrowing in hard and soft winter wheat spreads.


The bank said it had a “soft bullish outlook” on prices of New York cotton futures, for which it maintained expectations of values averaging 62 cents a pound both for the last three months of 2019 and the January-to-March quarter of 2020, forecasts slightly about market values.


The forecasts reflected “renewed optimism” over a resolution of the China-US trade war, besides an expectation that the US cotton harvest will be downgraded further from the US Department of Agriculture’s current forecast of 21.86m bales.


Rabobank - which itself has a 21.6m-bale forecast, following a crop tour – also flagged the potential for Australia’s crop to hit a 12-year low thanks to a “severe lack” of rains, but saw the Indian crop potentially exceeding 30m bales, as opposed to the 29.50m bales that the USDA currently forecasts.


‘Visible strength’

For New York raw sugar, the bank also said it was “cautiously bullish” on prices, this time citing a worsening Indian production outlook, thanks to extreme wetness, besides dryness threats to European sugar beet crops.


Yields for EU beets, refined into white sugar, “have already suffered” with crops in France, Germany and the UK “particularly affected”.


Indeed, the bank noted “visible strength” in the London white sugar market, where the December contract is up more than 9% this month, compared with a rise of some 3.5% in New York raw sugar,


While Rabo downgraded its forecasts for raw sugar futures in the imminent quarter and the first three months of 2020 by 0.3 cents a pound, to 12.8 cents a pound and 13.0 cents a pound respectively, the estimates remain comfortably above the futures curve.


‘Decline in stocks’

For arabica coffee too, the bank too said it was “bullish” on prices, despite trimming expectations for average spot values in the both of next two quarters, by 1 cent a pound to 107 cents a pound.


The market will “likely” find support from a “decline in certified stocks”, a prospect highlighted earlier this week by Agrimoney, with strength in the Brazilian real foreseen too, also a prop for ags in which the country is big player.


However, its forecasts for robusta coffee - while downgraded by $30 a tonne to $1,400 a tonne for the October-to-December period, and by $20 a tonne to $1,430 a tonne for the first three months of 2020 – remain further ahead of their futures curve.


Rabobank cited a market in which many roasters are proving “slow to accept the cupping profile” of Brazilian supplies, while Vietnamese robusta exports are being constrained by hoarding and a positive Indian dipole index, a meteorological indicator, signals further dryness in Indonesia.


Hard vs soft

Among grains, the bank stuck by forecasts for Chicago and Paris wheat prices close to the futures curve.


It highlighted dryness setbacks to Argentine and Australian 2019 crops, besides to European and former Soviet Union sowings for harvest next year, but said that “a likely improvement in the weather in key European regions… should prevent Chicago wheat from going much beyond $5 a bushel”.


Nonetheless, it saw potential for Kansas City hard red winter wheat prices to outperform, foreseeing that the “better US export outlook” fostered by downgraded southern hemisphere crops “could result in a narrowing of the discount” of the contract to its Chicago peer.


While not expecting a return to historical averages, which would give Kansas City a premium, it said that “probably a move… to a more normal $0.50-a-bushel [discount] is likely”, from the $0.74-a-bushel discount seen on Thursday.


‘Tenuous, but improving’

For corn futures, it stuck by price forecasts in line with the futures curve, and forecasting that values “will remain rangebound because of lacklustre US demand and fund selling”.


For soybeans, it raised its forecast for values in the October-to-December and January-to-March periods by $0.25 a bushel, although also to levels not far from those investors are pricing in.


“Tenuous, but improving export and domestic demand will encourage fund short [covering], and keep the wind at the back of Chicago soybeans.”

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