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Agricultural commodity prices poised for gains - particularly in 2019


Brokers are “positive” on prospects for agricultural commodity prices – although particularly in 2019, FocusEconomics said, as the market negotiates one commentator termed a “key test” of whether a price bottom has been reached.


Research by FocusEconomics showed brokers standing by forecasts for ag futures in the last quarter of 2018 broadly ahead of the values that investors are factoring in, and above spot prices too.


Analysts monitored, which include the likes of Commerzbank, DZ Bank and Societe Generale, consider “the outlook for agricultural commodities remains positive”, FocusEconomics said.


“They forecast a 5.7% annual increase” in prices in the October-to-December period of 2018, an acceleration of the 3.3% growth forecast for the current quarter.


‘Likely to boost prices’


The analysis group highlighted expectations that “sugar prices should recover from this year’s dismal performance as more producers switch to producing ethanol… tightening sugar supply”.


The consensus forecast for prices averaging 15.5 cents a pound in the last three months of 2018 is ahead of the 14.99 cents a pound being priced into the October contract, besides the 14.81 cents a pound at which the spot March lot was trading at on Wednesday.


For corn, FocusEconomics said that “lower production… in key countries such as Brazil and China will likely also boost prices”, seen at about $4.11 a bushel in Chicago at the close of next year, above the $3.88 ¼ a bushel the market is pricing in to the December 2018 contract.


“Corn prices should rise from their current low level thanks to greater demand for food, feed and industrial usage.”


And in coffee and cocoa “despite a potential surplus… prices should benefit from resilient demand”, the group added, with arabica values seen ending next year at about 145 cents a pound – ahead of the 137.25 cents a pound at which the December 2018 lot is trading at.


Analysts forecast New York-traded cocoa futures averaging $2,072 a tonne in the last three months of next year, ahead of the $1,978 a tonne being priced in to the December contract.


‘Strong global demand’


And the gains are expected to keep coming in 2019, with cocoa prices seen rising further to $2,185 a tonne by the close of that year, again a figure well ahead of the futures curve.


Arabica coffee futures are seen ending 2019 at about 156 cents a pound – a price not seen since January, and which investors do not expect to return until late 2020.


“Strong global demand is expected to lift prices in the medium term,” FocusEconomics said.


Meanwhile, New York-traded raw sugar futures are seen closing 2019 at some 17.0 cents a pound, ahead of the 15.58 cents a pound being priced in to October 2019 futures.


And cotton values, at 71.3 cents a pound in the last quarter of 2019, are seen a little ahead of the current futures curve, with consumption “expected to outpace supply in the medium term”.


Grain price outlook


Among grains, 2019 is expected to bring particular gains in Chicago corn futures, with prices seen ending the year at $4.43 a bushel – a price not seen on a spot basis since June 2014.


Chicago corn futures for December 2019 were on Wednesday priced at $4.09 ½ a bushel.


And a late-2019 forecast for soybean futures at $10.32 a bushel was also modestly ahead of the futures curve.


Indeed, wheat – for which analysts foresee Chicago futures ending 2019 at about $5.35 a bushel, a touch below the $5.43 a bushel priced in to December 2019 futures – was one of the few ags on which brokers are somewhat bearish.


‘Potential breakout soon’


The analysis comes at the start of what the Bloomberg Commodity Index said looks an important month for the agricultural commodity market, which appears, from its “compressed” pricing structure, to be awaiting the “next catalyst.


“Recovering slightly from US harvest pressure in November, agriculture prices face a key test in December” – a month in which the Bcom ag spot index has not risen since 2011.


A gain this December would “indicate a potential longer-term bottom” in prices has been reached, while a drop in values would likely mean a continuation of a downward trend, “with prices drifting lower on rapidly increasing supply”.


“A two-decade extreme narrow trading range in the grains indicates a potential breakout soon, historically favouring higher prices,” the index said.

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