Brokers are cautious over agricultural prices hanging on to gains, cutting forecasts for many even as values were rising, and leaving cotton as a rare bullish recommendation.
A FocusEconomics survey made earlier this month, and covering commentators such as Commerzbank, Goldman Sachs and Societe Generale, shows them cutting to 4.0%, from 4.8%, their forecast for the growth in ag prices in the October-to-December quarter, compared with a year before.
The downgrade reflected cuts to the consensus forecasts for fourth-quarter prices of six of 10 contracts covered.
The forecast for sector price gains over 2020 was also reduced, to 4.3% from a 5.1% figure reported in May.
While the survey was made ahead of Tuesday’s Wasde briefing, which spurred fresh gains in grain prices, it came nonetheless amid a rally which had driven up prices, as measured by the Bcom ag subindex, by nearly 10% in the month ahead of the report.
Chicago soybean futures suffered a particularly marked reduction in the price forecast for the October-to-December period, with brokers forecasting an average spot value of $8.84 a bushel, down $0.34 a bushel month on month.
That compares with the $9.16 ½ a bushel being factored in on Friday into the November contract.
FocusEconomics, noting that prices had earlier this month “slightly pared back gains on reports of warmer weather in the Midwest and threats of tariffs on Mexico”, added that “US-China trade talks will remain key to the price outlook”.
‘Prices seen abating’
The forecast for fourth-quarter Chicago wheat prices was also downgraded, by $0.17 a bushel to $4.62 a bushel, significantly below the $5.50 ¼ a bushel investors were on Friday pricing in to the December contract.
“Prices are seen abating due to elevated production this year… although solid demand should buttress prices nonetheless,” FocusEconomics said, noting too that US farmers had caught up on spring wheat sowings, and that winter wheat crop condition remained strong.
The proportion of US winter wheat rated good or excellent by the US Department of Agriculture has remained unusually high, defying market talk of persistent rains reducing quality, besides flattening some crops and making them difficult to harvest.
Output prospects in the likes of the European Union and Russia are also seen as stronger than last year.
‘Major downside risk’
For corn, at the centre of the grain market rally, brokers in fact raised their fourth-quarter price outlook, by $0.12 a bushel to $3.93 a bushel, although this remains well behind the $4.58 ¼ a bushel that the lot was trading at on Friday.
In fact, the lot has not traded at $3.93 a bushel since May 16.
FocusEconomics said in its report that “prices should remain elevated going forward, driven by stronger food, feed and industrial demand, and dampened supply prospects”, but added that “further tariff action from the US regarding China and Mexico remains a major downside risk”.
‘Reduce the glut’
Among soft commodities, brokers reduced their forecast for fourth-quarter New York raw sugar prices by 0.4 cents a pound to 13.2 cents a pound, roughly in line with the futures curve, although seeing further appreciation afterwards, to 14.3 cent a pound in the last three months of 2020.
“In the coming months, sugar prices should rise on weaker projected production in several key countries, which would reduce the current supply glut,” the report said.
For arabica coffee, the forecast for New York futures prices in the October-to-December period was kept at 104 cents a pound, in line with the value of the December contract.
“Prices are expected to rise going forward on growing Asian demand, although high production levels will likely keep prices suppressed relative to recent historical standards.”
For New York cocoa, brokers raised their fourth-quarter price forecast by $21 a tonne to $2,305 a tonne, although this remains more than $200 a tonne below the current price of December futures.
"Going forward, prices are expected to be relatively stable, with growing demand largely offset by stronger global production," the briefing said, although noting too that "volatile weather conditions in West Africa... pose an upside risk to prices".
Cotton was the one ag for which brokers allowed scope for gains in prices ahead, even as they cut their fourth-quarter price forecast by 1.5 cents a pound from last month, to 73.1 cents a pound.
That remains above the 66.02 cents a pound the New York December contract is trading at.
“Prices plunged in mid-May as the US-China trade war escalated, which will likely dent demand, amid a sprightly supply outlook,” FocusEconomics said.
“Going forward, prices are seen increasing due to solid demand prospects.”