Rabobank flagged “buying opportunities” in soybean futures, while warning investors against getting too pessimistic on cocoa – but stuck with a downbeat outlook for arabica coffee price, and cautioned over sugar spreads too.
The bank, making modest upgrades to its forecast for Chicago soybean futures prices, said that “harvest lows have likely been set” in values, which typically see pressure in the autumn as the US harvest ramps up supplies.
While US harvest results “continue to points towards record production”, demand has been firm too, with exports proving “very strong” at 7.7m tonnes as of mid-October, a rise of 1m tonnes year on year.
Meanwhile in South America, Brazilian planting conditions are “mostly mixed”, with the conditions a little dry in the key state of Mato Grosso and neighbouring Mato Grosso do Sul, while in Argentina, “planted area will likely be impacted” by a government u-turn on plans to cut an export tax on the oilseed.
“The relatively tightness in the soybean balance sheet, and the importance of the South American crop to global supply, are likely to continue” to see funds raise their net position in Chicago soybean futures and options, Rabobank said.
“We maintain our view that soybean prices will continue to trade the $9.50-10-a- bushel range in the short-term, but moving higher into 2017,” the bank said, terming “buying opportunities” any break in prices below this range.
Chicago futures were seen recovering to average $10.50 a bushel in the July-to-September period of next year, a $0.40-a-bushel upgrade from the previous forecast, and ahead of the price that investors are factoring in.
Soybean futures for September 2017 were on Friday trading at $9.90 a bushel.
In cocoa, the bank also kept a relatively sanguine price forecast, despite dropping its forecasts for New York-traded futures by up to $140 a tonne, seeing them average $2,720 a tonne in the first three months of 2017.
However, that was above the $2,614 a tonne at which March 2017 futures were priced at on Friday, with Rabobank flagging the role of hedge fund liquidation, rather than worsened fundamentals, in recent price falls
“There are reasons that may prevent a further landslide in the cocoa market,” Rabobank said, flagging “disappointing arrivals” at Ivory Coast ports of beans from producers, and the prospect of extra consumption as global temperatures ease following a period being buoyed by El Nino.
“We believe that warm temperatures tend to reduce cocoa consumption,” the bank said, adding that “with the end of El Nino earlier in the year, we may have cooler temperatures going forward”.
Data this week showing a “very high” Asian cocoa grind in the July-to-September quarter, with volumes up 12.5% year on year, “may be a recovery in demand there”.
‘Could see market tumble’
Conversely, in arabica coffee, while the bank nudged higher by up to 3 cents its forecasts for New York prices, the estimates remained well below the futures curve.
For instance, it forecast prices at a little under 140 cents a pound in a year’s time, compared with the 167.10 cents a pound at which December 2017 futures were priced at on Friday.
“We may have better crops from Central America and Colombia coming to the market before the end of the year,” Rabobank said, adding that “early signs of increased crops in these countries could cause the market to tumble”.
While it raised its forecasts for London robusta futures by up to $120 a tonne, seeing them at a bit over $1,900 a tonne in a year’s time, that was also below the $2,135 a tonne investors are pricing in to November 2017 futures.
In Vietnam, the top robusta-growing country, “rainfall has been plentiful, which will reinforce the idea of a large crop next year,” after dryness-hit output this year in a number of major robusta-growing nations.
‘A lot of volatility’
Meanwhile, in the sugar market, the bank flagged the prospect of a weakening in the premium of white sugar over raw sugar, as European Union deregulation allows free exports of the sweetener out of the bloc.
The EU, a major producer of white sugar, “will easily export over 2m tonnes of white sugar in 2017-18”, Rabobank said, flagging some industry estimates as high as 5m tonnes.
Besides likely spurring a “lot of volatility” in the white sugar premium, the prospect of such heavy volumes will likely depress it.
“Certainly, the current $90-a-tonne premium [March 2017 basis] would seem to be on the high side.”
(Source – http://www.agrimoney.com/news/rabo-flags-buying-opportunities-in-soy-warns-against-cocoa-price-gloom–10051.html)