(AgriMoney) – Rabobank raised its forecast for sugar futures, citing “adverse weather” in top producers Brazil and India, but cut hopes for prices in many other ags, including cocoa and coffee amongst softs, and soybeans and wheat too.
The bank raised buy up to 0.60 cents a pound its forecast for New York-traded raw sugar prices, taking its estimates a little above the futures curve.
It, for instance, forecast values trading at 12.40 cents a pound next summer, above the 12.20 cents a pound that July 2016 futures were priced at on Monday, saying that “sugar market fundamentals are becoming increasingly supportive”.
The bank forecast a world sugar production deficit of 4.8m tonnes in 2015-16, a bigger shortfall than expected by some other commentators, with Platts Kingman, for instance, two weeks ago pegging the figure at 3.20m tonnes.
‘Deficit may deepen further’
“Adverse weather across India and Brazil, among other leading production origins, suggests that the production-led deficit may deepen further as El Nino continues to intensify,” Rabobank said.
The El Nino weather pattern is linked with wetness in Brazil’s key Centre South region, still posing a “risk” to the remainder of the cane harvest, which winds down towards the end of the calendar year.
In India, the second-ranked producing country, 2015-16 output looks set “to be less than 27m tonnes, down 5% from last year’s record” thanks to a “deficient” monsoon, which has left the key producing state of Uttar Pradesh with only 54% of typical rainfall, with Maharashtra levels at 70% of the norm.
Separately on Monday, Abinash Verma, director general of the Indian Sugar Mills Association, also pegged India’s sugar output in 2015-16 at 27m tonnes.
‘Downward correction’
However, Rabobank cut forecasts for other soft commodities, including cocoa, for which it saw New York futures returning well below $3,000 a tonne by the April-to-June quarter, to average $2,850 a tonne, nearly $400 a tonne below the price that investors are factoring in.
While “lingering dryness” is supporting cocoa prices for now, “we still believe there will be a downward correction, after the elections in Ivory Coast”, the top producing country, where fears of political unease have also been cited as a support for values.
The bank forecast a world cocoa production deficit of 113,000 tonnes in 2015-16, after a 50,000-tonne shortfall in the current season, which ends on Wednesday.
And for coffee, the bank lowered its forecast for New York arabica futures by up to 10 cents a pound, citing “excellent rains” in Brazil, a boost to flowering ahead of the 2016 harvest, besides weakness in the real, which represented some setback to sugar price prospects too.
Nonetheless, Rabobank’s coffee price forecasts remained above the futures curve, with the bank noting “weather problems” in some major producing countries, in particular a lack of rain Colombia, the second biggest arabica producing country, and Indonesia.
In both countries, El Nino periods have a record of promoting dryness.
Russia factor
Among grains, Rabobank trimmed its forecast for Chicago wheat futures by up to $0.20 per bushel, to levels a little below those investors are factoring in, with prices for instance seen averaging $5.10 a bushel in the October-to-December period.
Chicago’s December contract was trading on Monday at $5.14 ½ a bushel.
“Significant rallies will be difficult to sustain for the remainder of 2015 without adverse weather,” the bank said, noting pressure on values from “both ample export supplies and weaker currencies in Russia, Ukraine and the European Union”, major exporters.
“Wheat prices will remain under pressure until November,” when Russian exports often show a seasonal decline.
Farmer hoarding
And the bank cut its forecast for Chicago soybean futures too, by up to $0.50 per bushel – although also remaining more optimistic over price prospects than investors.
It saw Chicago futures back above $9.00 a bushel early next year, for instance, while futures are not pricing in that revival until July.
Rabobank, noting a Midwest “heatwave” in mid-September, said that it doubted the US soybean yield this year would hit the 47.1 bushels per acre forecast by the US Department of Agriculture, seeing the harvest come in at 45 bushels per acre.
“In addition, US farmers will once again store large amounts of their crops after harvest, which could tighten the US market temporarily and support basis and/or futures prices.”
