Commerzbank cut hopes for arabica coffee and sugar prices, citing weakness in the Brazilian real, but left its estimates above the futures curve, seeing scope for a revival in values.
Brazil dominates the world’s sugar and arabica coffee markets. Falling demand for the Brazilian currency means that Brazilian produce will be worth less in dollar terms.
“When the real depreciates, Brazilian suppliers can export their goods at lower prices in dollars without suffering losses in domestic currency,” the bank said.
Commerzbank cut its forecast for New York-traded arabica coffee futures, over the next two years, by up to 30 cents a pound.
Futures were seen ending the year at 170 cents a pound, compared with a forecast of 200 cents a pound made in February.
For raw sugar, price forecasts were cut by up to 2.5 cents a pound, with price seen ending the year at 15.0 cents a pound, down from a previous forecast of 17.0 cents a pound.
The falling real is also likely to cane-processors away from ethanol production, and toward sugar, as ethanol is used as domestic biofuel, while sugar can be sold for dollars on the international market.
Real at 11-year low
Commerzbank’s foreign exchange traders foresee prolonged weakness for the real, citing “weak macroeconomic fundamentals, the complicated political situation and the social unrest”.
A truckers’ strike earlier this month hampered crop deliveries to port, and was blamed by many commentators for curtailing exports.
“Since early March, the dollar has appreciated by another 12% versus the Brazilian realm” the bank said, adding that “since the start of the year it has even gained nearly one quarter”.
The real has underperformed every major currency, and hit an 11-year low against the dollar in mid-March.
‘Upside potential for prices’
Nonetheless, the bank’s forecasts for coffee and sugar prices remain above the futures curve, with December coffee futures trading at 153.80 cents a pound in New York on Friday.
Raw sugar for March 2016 was trading at 14.56 cents a pound.
“From the fundamental side, we still see some upside potential for prices,” Commerzbank said.
“The prospect of global supply deficits remains in place despite the fact that the latest rainfall has resulted in higher expectations of the forthcoming Brazilian coffee and sugar cane crops.”
In many cases rains which have reached dryness-hit parts of central Brazil “are likely to have arrived too late to prevent crop shortfalls”.
(Source – http://www.blackseagrain.net/novosti/commerz-lowers-coffee-sugar-price-forecasts)