Brokers have upped forecasts for prices of agricultural commodities, but remain sceptical of gains in prices of the likes of cocoa, cotton and wheat holding nonetheless, amid “profit-taking pressures”.
Leading agriculture analysts, who last month foresaw prices in the October-to-December quarter averaging 11.5% higher than a year before, have lifted that forecast to 14.4%, research by FocusEconomics show.
The upgrades came as “prices for a wide range of agricultural commodities soared… amid news that global supply could be disrupted in the coming months, due to severe cold weather in Europe and dry conditions in Argentina, the US and West Africa”, the analysis group said.
“Moreover, demand for agricultural products remains strong particularly for industrial usages, food supplies and animal feed.”
However, the rally “will be limited by profit-taking pressures, as investors would likely take advantage of the recent surge in agriculture prices”.
While commentators nudged higher their forecast for Chicago wheat prices, for instance, in the October-to-December period, to $5.08 a bushel, that remains well below the $5.38 ¼ a bushel priced in to December futures on Wednesday.
FocusEconomics, whose data is drawn from the likes of Citigroup, JP Morgan and Societe Generale, flagged the role of “bumper” Russian production in depressing prices, with SovEcon on Tuesday highlighting the prospect of a further strong harvest this year.
For New York cotton, commentators flagged the potential for a retreat in prices ahead too, raising their forecast for prices in the last three months of 2018 by 2.6 cents a pound to 74.7 cents a pound – but a level below the 78.62 cents a pound currently factored in to December futures.
“Improved global supply this year will be nearly matched by stronger global demand, particularly from Asia,” said FocusEconomics.
“That said, optimistic medium-term supply estimates are keeping a lid on prices.”
‘Roll back price gains’
For cocoa, the consensus forecast for prices in the October-to-December period rose by $13 a tonne month on month to $2,159 a tonne – but remained well below the futures curve.
New York’s December cocoa contract closed on Tuesday at $2,560 a tonne.
“Cocoa prices are expected to roll back some of this month’s price gains going forward,” FocusEconomics said, flagging an International Cocoa Organization forecast for a world production surplus of 105,000 tonnes in 20178-18, although West Africa’s woes have raised doubts over this estimate.
Meanwhile, for Chicago soybeans, commentators stood by a forecast for prices at $10.19 a bushel in the October-to-December period which remains below the $10.42 ½ a bushel the market values November futures at.
“Global production should increase on greater Brazilian and US output, largely offsetting higher demand.”
‘Ceiling on prices’
Still, analysts stood by expectations for a corn price of $4.09 a bushel at the end of the year, in line with the futures curve.
And for sugar, while the consensus forecast for October-to-December prices was cut again, by 0.4 cent a pound to 15.3 cents a pound, that remains nearly 2.0 cents a pound ahead of the price October futures were trading at.
Indeed, it is a price the futures curve does not see being reached until spring 2020.
“Ample output should maintain a ceiling on prices over the mid-term, although a higher share of ethanol production by Brazilian sugar mills could provide some price support,” FocusEconomics said.
‘Depleted global supply’
In New York-traded arabica coffee, analysts stuck by a forecast for October-to-December prices at 137 cents a pound, ahead of the price expected by investors, with December futures on Wednesday trading at 129.40 cents a pound.
“Depleted global supply will lift prices somewhat ahead of the 2017-18 harvest.
“Over the medium term, improved supply should be met with stronger demand.”