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Commerzbank sanguine on cocoa, coffee, sugar prices

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Commerzbank sounded a sanguine note on soft commodity prices, seeing some scope for recovery in sugar, and nudging higher its forecast for arabica coffee values, while saying the cocoa market "should soon have passed the trough".

The bank lifted by up to 5 cents a pound its forecasts for quarterly average arabica coffee futures prices, raising the estimate for values in the first three months of 2018 to 145 cents a pound.

The upgrade took the forecast further ahead of the futures curve, with March 2018 futures trading on Thursday at 132.80 cents a pound.

And it reflected the prospect of a world coffee production deficit in 2017-18, dragging carryout stocks to a six-year low on US Department of Agriculture estimates, and the dryness which has raised questions over blossoming on Brazilian plantations, ahead of the 2018 harvest.

'Volatility should remain high'

"While the rainfall in August was advantageous for the blossom, the chief executive of [Brazil's] largest cooperative Cooxupe is not alone in warning that it is still too dry for an even blossom and this is depressing the outlook for next year," the bank said.

And with hedge funds holding a substantial net short position in arabica coffee futures and options, "we could see substantial price swings to the upside with short coverings if sentiment turns" more bullish on prices.

However, the bank - flagging that a "complex" coffee pricing picture also including the likes of large stocks in importing countries, and potential further weakness in the real, which cuts the value in dollar terms of Brazilian assets – said that the "scope for price rises remains limited.

"Volatility should remain high, though."

Sugar price outlook

For London-traded robusta coffee, the bank stuck by estimates of prices averaging $2,000 a tonne in the first quarter of 2018, ahead of the $1,917 a tonne priced in by March futures, with supplies still seen feeling the hangover from a poor 2016-17 harvest in top grower Vietnam.

For sugar too, Commerzbank held by price forecasts a little above current market values, seeing New York raw sugar futures averaging 14.0 cents a pound in the January-to-March period.

The bank cited the prospect that Brazilian sugar output "will weaken relative to ethanol production", as the relatively weak price of the sweetener prompts mills to turn more cane into biofuel instead.

However, it forecast "little upward potential for the sugar… price for the time being", given broad market expectations of a return to a world output surplus in 2017-18, besides the dent to prospects from a weaker real.

'Moderate recovery in prices'

For cocoa, meanwhile, Commerzbank forecast "a moderate recovery in prices in 2018", helped by expectations of weaker production in Cote d'Ivoire, the top growing nation, were output hit a record 2m tonnes in 2016-17.

Furthermore, "demand has picked up again now amid lower prices.

"Following two years of falling consumption, processing in 2016-17 should have expanded by as much as 3.7%," led by expansion in Africa and Asia.

"While cocoa is justifiably trading much lower than one year ago, it should soon have passed the trough," the bank said, forecasting prices at $2,000 a tonne in the January-to-March period, in line with current values, and rising to $2,100 a tonne by the end of next year.

The December 2018 contract was on Thursday trading at $2,064 a tonne.

By Mike Verdin

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