(Agrimoney) – Coffee and sugar prices have fallen too far, ABN Amro said, forecasting recoveries in futures over the next couple of months, and through 2016 – although proving less upbeat over cocoa.
“We foresee an upturn in prices as the year progresses,” said Frank Rijkers, ABN Amro senior economist for agrifood and commodities.
“Coffee and sugar in particular have upward potential.”
The forecast reflected in part expectations that economic growth prospects, while facing downgrades, remain significant enough in Asia, Europe and the US “to fuel accelerating demand for luxury goods.
“This is reflected in a moderate increase in the demand for softs,” Mr Rijkers said, noting estimates of sugar consumption growth of about 2%, while coffee use has been growing by 2.4% a year, according to the International Coffee Organization.
Ahead of the futures curve
Meanwhile, production for both agricultural commodities faces challenges – such as, for sugar, dry weather in the likes of India, the second-ranked producer, and in top-ranked Brazil the swing towards processing cane into ethanol rather than sweetener.
Furthermore, the low sugar prices seen before futures rallied in October has meant “low planting renewals and field husbandry”, the bank said, highlighting expectations of a world output shortfall of some 3.5m tonnes this season and of 6m tonnes in 2016-17.
ABN, while trimming by 0.50 cents a pound to 15.00 cents a its forecast for New York raw sugar futures at the close of the January-to-March quarter, kept the estimate ahead of the level investors are factoring in.
May futures closed on Friday at 14.17 cents a pound.
And the bank forecast futures ending 2016 at 15.50 cents a pound, ahead of the 14.42 cents a pound that March 2017 futures were priced at
‘Prices set to rise’
For coffee too, the bank forecast prices ending the current quarter, and 2016, above the level that futures markets expect, with New York arabica values seen at 140 cents a pound at year-end, above the 126.80 cents a pound investors expect.
London-traded robusta coffee futures were forecast ending 2016 at $1,650 a tonne, above the price of $1,527 a tonne that the market was factoring in on Friday.
“Coffee prices are set to rise in 2016,” Mr Rijkers said, flagging an expectation that demand will exceed supply by more than 4%.
And this is ahead of potential production losses to weather threats, including a hangover from El Nino, which has brought dryness to much of South East Asia.
While output in Vietnam, the top robusta-growing country, has been “barely affected” by dryness so far, “thanks to good irrigation and the presence of sufficient water buffers… will this remain the case in the coming year?
“Signs of delayed drought impacts are now coming to the fore, suggesting that output next autumn may be disappointing.”
‘Ongoing margin pressure’
However, for New York-traded cocoa futures, while seeing the potential for prices to recover for now – to end March at about $3,000 a tonne, above the $2,878 a tonne May futures are factoring in – the revival will not last.
Futures were forecast ending 2016 at $2,750 a tonne, some $100 a tonne below the futures curve.
The dent to output in West Africa, the top cocoa-growing region, from the dry Harmattan wind “looks likely to be less negative than originally thought”, Mr Rijkers said.
Cocoa arrivals from plantations to Ivory Coast ports reached 859,821 tonnes in the first three months of 2015-16, to the end of last month, while there are reports of a strong recovery in purchases by Ghana’s industry regulator, Cocobod.
And, on the consumption side, processors face “ongoing margin pressure” too, curtailing demand.
Data last week showed a better-than-expected European cocoa grind in the October-to-December quarter, but an unexpectedly large drop in North American grindings.
Separately, chocolate giant Barry Callebaut highlighted pressure on the so-called combined ratio – the value of cocoa processing products, powder and butter, compared with the cost of raw beans.
