Sugar a better bet than cotton or grains

(Agrimoney) – Sugar futures have far better prospects than cotton ones, Australia & New Zealand Bank said, while foreseeing “subdued” grain prices despite cutting its forecast for Australia’s wheat harvest.

The bank forecast New York sugar futures recovering to average 19.0 cents in the first three months of 2015, well above the level that investors are factoring in.

Futures for March 2015 delivery stood at 16.13 cents a pound on Thursday, and for May 2015 at 16.57 cents a pound.

ANZ acknowledged the dent to prices from high inventories in Brazil and in Thailand, the second-ranked exporter, where stocks in the second half of 2015 are running at double typical levels.

“Brazil’s stocks are also higher this year, driven by a faster cane harvest and a higher sugar content of cane processed early in the season,” with sugar levels boosted by persistent drought in the country’s key Centre South cane-growing region.

‘Stocks to shrink’

However, the bank underlined the eventual support for prices from another impact of drought – poor cane yields which, coupled with a strong harvest pace, look like seeing supplies of the crop run out before the late November-early December period when the crushing period typically stops.

“We don’t expect the better stock position in… Brazil to last,” ANZ said.

“The faster harvest progress to day is only likely to take away from Brazil’s sugar output late in the fourth quarter of 2014.”

The forecast of higher prices ahead echoes expectations from sugar producers such as Cosan and Sao Martinho, which have withheld short-term sales in the hope of higher values later on.

‘Far more dire’

For cotton, “the stocks situation is far more dire” from a pricing perspective, the bank said, noting expectations of a rise of 1.5m-2.0m tonnes in global inventories this season despite a pick-up in consumption,

“China alone now has over 1.5 years of stock for its mills, based on recent consumption patterns, leaving scope for a prolonged period of weak import demand from China,” the top importing country.

The heavy stocks mean that the “price outlook for cotton is more subdued” than for sugar, with ANZ forecasting the New York futures will trade between 65-70 cents a pound through to December.

The December contract stood at 65.19 cents a pound on Thursday, down 0.8% on the day.

Grain price prospects

The bank was largely downbeat over grain prices too, despite cutting by 2.0m tonnes to 24.5m tonnes its forecast for the Australian wheat crop, citing damage to crops from frost and dryness.

“Vegetative indices now suggest much of the crop is in worse condition than last year in New South Wales and South Australia,” ANZ said, speaking a day after South Australia farm officials downgraded expectations for the state’s harvest.

“Little looks set to change for global feed grain prices through the fourth quarter of 2014, as the weight of record US corn and soybean yields keep prices at four-year lows.”

However, there was the potential for some support to values from China, where a 15% rise in domestic corn prices since June, against a background of drought in some major producing regions, “suggests China’s grain market is perhaps not as well stocked as some had anticipated”.

In wheat, damage to the quality of European Union and Ukraine harvests from late rains, coupled with tight supplies of US hard red winter wheat, means that “premiums for mid-protein wheat should remain elevated, and potentially rise further in the first half of 2015”.