Cocoa, coffee better placed than grains for price revival

April 8th, 2015

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Category: Uncategorized

cocoa beans 450x299(Agrimoney) – Prices of coffee and cocoa, and eventually sugar, look better placed for recoveries than those of grains, Macquarie said, placing a “bearish” outlook on values of animal feed.

The bank, estimating at more than 10% the drop in agricultural commodity prices overall so far this year, said that cocoa and coffee values had fallen “too low”, and showed “upside potential” for the April-to-June quarter.

While rains in Brazil – where dryness for much of last year and early in 2015 supported coffee prices – have bolstered hopes for bean output in the top producing country, “there are likely still soil moisture issues” in major growing areas.

“These issues will inhibit bean develop,” Macquarie said, adding that “compounded with last year’s soil moisture problems from the drought, this may produce another coffee deficit this season”.

Supply threats

Coffee prices likely faced support from a reluctance by growers in both Brazil and Vietnam, the top grower of robusta beans, to sell as lower prices.

Vietnamese coffee exports may fall to 60,000-100,000 tonnes this month from 130,000 tonnes in March, a Reuters survey on Tuesday showed.

Meanwhile cocoa values may find support from a “risk” that output losses in Ghana, the second biggest producing country, “may not be recovered.

“This will likely ensure the [world] market falls into a deficit, albeit only a small one,” Macquarie said, also flagging doubts over whether top producer Ivory Coast will be able, for a third successive year, to maintain strong output.

‘Encourage buying activity’

For sugar, the bank, while seeing little reason for an immediate recovery in prices for now, given the prospect of India raising exports if values recovery, said that “further downside is limited”.

And further ahead, bargain hunting ahead of a 2015-16 crop year expected to see a world production deficit may support prices.

“In the medium term, the current low price environment will likely encourage buying activity and offer a good entry point in anticipation of a deficit market cycle later this year – albeit not as big as previously expected,” Macquarie said.

‘Hard to become more bullish’

However, it was less reassuring for grain bulls, seeing a “neutral” outlook for grains prices.

“We feel the perception of weather issues in the US and Black Sea has largely been priced in already.

“Without more severe weather conditions, it will be hard to become more bullish on wheat, which has been mostly traded on the weather market recently.”

And on prices of feed ingredients corn and soymeal it was outright “bearish” on price prospects.

“The abundance in global corn supplies will weigh on prices,” the bank said, noting also US data last week showing a lower-than-expected drop in US corn sowings this year a factor which  suggests “it will be difficult to reduce availability” of the grain.

Prospects for soymeal supplies, meanwhile, are being supported by a record South American soybean crop and ideas of record US sowings this spring.

“We do not think that the livestock sector has recovered sufficiently to absorb additional soymeal production,” Macquarie said.

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