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Brokers curtail pessism over agricultural commodity prices


Brokers have eased back on their pessimism over prospects for agricultural commodity prices over 2020, upgrading expectations for values of the likes of soybeans, sugar and wheat, after a positive July performance.


A roll of commentators including ABN Amro, Commerzbank, Goldman Sachs and JP Morgan as monitored by FocusEconomics still see ag prices falling by 4.9% this year, in terms of average values in the October-to-December period compared with the same period of 2019.


“Tepid demand… amid weaker global retail sales and softer appetite for biofuels, will likely drive the overall fall,” FocusEconomics said, citing too “easing demand for perishable food products and animal feed”, besides uncertainty over the evolution of the Covid-19 pandemic, and China-US tensions.


However, the forecast decline is more modest that the 7.3% drop expected a month ago, and indeed puts them at their least downbeat since April.


‘Pick-up in demand’

The improvement in sentiment followed a 2.4% gain in prices in July, “the fastest pace of growth since December… largely driven by higher prices for palm oil and sugar”, FocusEconomics commodities economist Almanas Stanapedis said.


“A weaker dollar was likely partly behind the rise in prices for corn, wheat, soybeans and cotton,” improving the affordability of dollar-denominated assets for buyers in other currencies.


“Moreover, a pick-up in demand amid further easing of lockdown restrictions should have driven a rebound in coffee prices in recent weeks.”


‘Should prop up prices’

The upgrade reflected increased expectations for values of the likes of wheat, for which Chicago prices were seen averaging $5.29 a bushel in the fourth quarter, up $0.06 a bushel from last month’s estimate, and taking the forecast further ahead of the futures curve.


Chicago’s December lot was on Wednesday trading at $5.00 ¼ a bushel.


“A slight recovery in demand prospects should prop up prices by year-end,” the analysis group said, noting too “a deteriorating supply outlook” in some geographies, such as the European Union, although recent days have seen a rebound in expectations for Russia’s harvest.


‘Seen gradually rising’

Brokers also lifted modestly, by $0.10 a bushel to $8.96 a bushel, expectations for Chicago soybean prices in the quarter, ahead of the $8.73 ¼ a bushel being factored into the November contract.


“The price of soybeans is seen gradually rising in the coming months,” although “coronavirus-related demand concerns and US-China trade policy uncertainty are key risks to this outlook”, with US output expectations rising too.


For corn, brokers stood by a consensus forecast for prices averaging $3.43 a bushel in the October-to-December period, comfortably above the $3.23 ¼ a bushel at which the Chicago December lot was priced on Wednesday.


For cotton too, price gains are seen on the cards, with the consensus estimate for fourth quarter New York values nudging 0.6 cents-a-pound higher to 64.2 cents a pound, despite a “soft global demand prospects and ample US output”.


‘Prices will struggle’

However, analysts were less upbeat on expectations for values of some other soft commodities, with their forecast for New York arabica coffee, little changed at 110 cents a pound for the October-to-December period, in line with the futures curve.


While citing the prospect of price support from “a recovery in demand”, FocusEconomics noted too that “larger Brazilian crops pose a downside risk to prices”.


For sugar, while the consensus price forecast for the quarter was raised by 0.3 cents a pound to 12.3 cents a pound, that remains well below the futures curve.


“Prices will struggle to make further gains and are seen falling by year-end due to strong supply in Brazil and fragile demand due to pandemic.”


‘Somewhat gloomy’

For traded cocoa, commentators sliced their price forecast again, this time by $117 per tonne to $2,251 per tonne, taking it further below the New York market, where the December contract was trading at $2,457 per tonne.


“Prices are expected to be somewhat gloomy due to relatively weak demand prospects,” FocusEconomics said, if adding that “extremely volatile weather conditions in West Africa remain a key upside risk to prices”.


For palm oil too, price losses were seen ahead, despite an upgrade in the price forecast of $13 per tonne to $582 per tonne.


“Prices are expected to drop by year-end after such a sustained rally recently, amid uncertainty regarding the strength of the rebound in global demand.


“Weather concerns in key producing countries and fluctuations in prices for other oils, such as crude oil or soyoil, will also be key factors to watch going forward.”

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