ABN Amro sounded a bullish note on prospects for cocoa and coffee futures, and for sugar too, although said there was “limited” potential for a substantial recovery in prices of the sweetener.
The bank, nudging higher its forecast for arabica futures, said that “bullish arguments for coffee have increased” with reductions to expectations for Brazilian production this year.
“The price-driving factor is the smaller-than-expected domestic supply” in Brazil, the top coffee producer and exporter, with harvest estimates falling below the levels above 50m bags which had been expected, ABN said,
The comments come two days after coffee house Volcafe lowered by 3.6m bags to 48.3m bags its forecast for the Brazilian harvest, saying that the size of beans had proven “much lower than anticipated”, meaning more are needed to fill a 60-kilogramme bag.
After a disappointing harvest last season too, Brazil’s exportable coffee supplies will in 2015-16 prove the lowest in six years, Volcafe added.
Arabica vs robusta
ABN Amro flagged some potential on coffee prices from the robusta side, citing expectations of rise in production in Vietnam, the top robusta producer, this year.
Despite worries over El Nino, which typically brings unduly dry weather to South East Asia, the weather pattern “remains under the radar”.
Volcafe trimmed its forecast for Vietnamese coffee output in 2015-16 by 500,000 bags to 30.0m bags, but this remains above the 27.4m bags reaped in the last harvest.
With an “overhang” of coffee being held by Vietnamese merchants. who have been seeking higher prices, “the appetite to be short of robusta is growing”, ABN said.
Nonetheless, the bank forecast London robusta futures averaging $1,775 a tonne in the October-to-December quarter, well above the $1,637 a tonne being factored in by investors on Friday.
For New York arabica futures, the bank lifted its forecast for average prices in 2015 by 10 cents a pound to 135 cents a pound.
It estimated values averaging 135 cents a pound in the last three months of the year, ahead of the 124.75 cents a pound at which December futures were trading at.
Elections ahead
For cocoa, ABN reduced its forecast for full-year prices by $90 a tonne to $3,060 a tonne, noting that the market had “lost its upward momentum”, weighed by weak data on volumes of the bean ground by processors.
However, the bank stood by expectations of prices averaging $3,250 a tonne in the current July-to-September period, well ahead of the spot price of $3,112 a tonne, and indeed a level not seen since mid-July.
The bank cited the uncertainty presented by elections next month in Ivory Coast, the top cocoa-producing country, which has a chequered history of political stability.
“Any threat to peaceful voting could attract increased volatility to the market.”
‘Upside potential is limited’
For raw sugar, the bank stood by ideas of New York futures ending the year at about 12.75 cents a pound, well head of the 11.97 cents a pound being priced in by investors on Friday.
However, “upside potential is limited”, ABN said, noting that the world sugar production shortfall forecast for 2015-16 will follow several successive seasons of surplus.
“Despite the expectation that sugar prices are finding their bottom, this does not automatically imply heavy price gains.
“We foresee a slight price increase over the coming months.”
