Soft commodities look better bets than grains, according to Goldman Sachs, which flagged the potential for firm demand to lift prices of cocoa and coffee, while record output dents corn and soybean futures.
The bank - while cutting its price hopes for New York cocoa futures by $400 a tonne across the board – was more sanguine than investors, seeing values at $2,200 a tonne in a year's time, compared with the $2,071 a tonne that the March 2018 contract was trading at on Wednesday.
Goldman acknowledged that weather conditions in West Africa, the major cocoa-growing region, had been "very supportive of yields", with the region suffering only a "very mild" iteration of the Harmattan wind – unlike a year ago.
However, while soft grinding data too suggest "we are likely to shift to a sizeable surplus" in 2016-17, the tumble in prices to their lowest since 2008 will help to revive consumption.
"Given the discretionary nature of cocoa demand we do see lower prices helping to boost demand, particularly as we continue to move into the next, expansion, phase of the global [economic] growth cycle," the bank said.
In coffee too, Goldman said that its forecast of stronger world economic growth ahead, rising by 3.5% this year and 3.75% in 2018, combined with "rotation towards the consumer in key emerging markets such as China, points towards continued strong global demand growth".
This at a time when a hangover from drought may keep robusta coffee yields in Brazil "depressed for a while longer", with the country's arabica bean output constrained by it being an "off" year in a cycle of alternate higher and lower producing years.
"While supply fundamentals look set to improve, we don't believe that supply will be able to recover sufficiently in 2017-18 to fully offset the continued growth in demand," making it "another deficit year", the bank said.
Price risks are "skewed to the upside", it added, forecasting New York arabica futures at 170 cents a pound in a year's time, ahead of the 162.00 cents a pound priced in by March 2018 futures.
On sugar too, a forecast for New York futures at 22 cents a pound in a year's time was ahead of the 20.41 cents a pound investors were plugging into the March 2018 contract.
The bank flagged "underwhelming" output in India, where drought has cut the cane harvest in Maharashtra, and a hangover to Brazilian output from "lack of maintenance" in cane crops.
However, Goldman was markedly more downbeat than investors on prospects for Chicago corn futures, seeing them at $3.35 a bushel on a 12-month horizon, well below the $4.05 a bushel Chicago's March 2018 contract was priced at.
The bank flagged the need for prices to continue to fall to undermine sowings and output which have "remained stubbornly high", allowing a continued rise in world inventories.
"We continue to believe that ultimately even lower prices, at or slightly below production costs, will be necessary to curtail this supply growth, assuming normal weather conditions."
The weakness in corn represents a drag on prospects for soybeans too, which will find their values depressed by "normalisation" in the price ratio between the two crops.
Goldman forecast soybean prices in a year's time at $8.85 a bushel – more than 13% below the value of March 2018 futures on Wednesday – despite the prospect of continued strong imports by China.
"While we continue to believe that rotation in China towards the consumer (and hence greater meat, soybean and meal demand) is a structural trend, we do not believe that the near-term rally in the soybean/corn ratio will be sustained.
The bank was also cautious on the cotton rally, seeing New York prices "stabilising at 70 cents a pound" over the next year, rather than rising to 74.59 cents a pound as shown by the March 2018 lot.
"We see continued competition from man-made fibres, capping upside in cotton prices," Goldman said, flagging too the potential weight on values from fresh auctions by China later this year of cotton from its huge state stockpiles.
By Mike Verdin