US weather fears which have sent wheat prices soaring are “unlikely to prove long-lasting support”, Rabobank warned, also urging against over-optimism on sugar prices, and flagging a “war” among coffee commentators.
The bank, contrary to the market thinking which has prompted a sharp rise in wheat prices this month, cut its forecasts for futures in both Chicago and Paris, to levels below levels that investors are now factoring in.
It now sees Chicago wheat, for instance, averaging $5.20 a bushel in the October-to-December quarter, below the $5.49 a bushel that December futures were trading at on Friday.
Chicago’s best-traded July contract is up 11% so far this month, lifted by fears for dents to production from wet weather in parts of the US, and dryness in Canada and Russia.
Paris wheat will end the year at about E185 a tonne, a touch below the E188.50 a tonne that December futures were priced at.
‘Big stocks to build further’
The forecasts reflected in part an expectation that the fears over wet weather in the US Plains which have been a major driver behind this month’s rally represents a quality rather than a quantity test for this year’s harvest.
“These weather factors were unlikely to provide long-lasting bullish support,” Rabobank said, adding that US wheat stocks, set to end 2014-15 “big… are forecast to build further” next season.
In fact, many northern hemisphere wheat-growing areas have enjoyed “beneficial weather conditions”, while competition on export markets will be stoked by Russia’s decision to scrap its export tax.
Indeed, “strong” Black Sea wheat exports will limit European Union shipments to about 30m tonnes in 2015-16, down some 10% year on year and below the level of 32.5m tonnes that the US Department of Agriculture has factored in.
Rabobank also cautioned investors against getting overoptimistic on sugar futures, even while nudging its estimate for New York prices in the July-to-September quarter 0.3 cents higher to 12.5 cents a pound – a forecast still below the futures curve.
Prices in a year’s time will stand at about 13.0 cents a pound, well below the 14.29 cents a pound that May 2016 futures are pricing in.
The forecast reflected expectations of further weakness in the real, lowering the value in dollar terms of assets in which Brazil is a major player, plus resilient world production despite low prices.
“The transition to a tighter supply-demand balance in 2015-16 is on track, but the prospect of a significant stock drawdown is unlikely,” the bank said.
Coffee price dynamics
In coffee, the bank cut its price forecasts, particularly for London robusta futures, for which it ditched ideas of values ending the year above $2,000 a tonne, and cut its forecast for average values in the July-to-September quarter by $370 a tonne to $2,300 a tonne.
For New York arabica futures, the bank trimmed its price forecasts by up to $0.10 per pound, now seeing prices average 155 cents a pound in the October-to-December quarter.
These estimates remain above the futures curves for both varieties, and imply rises of well over 10% ahead in prices of, for example, the November robusta and December arabica contracts.
However, the bank acknowledged a large degree of uncertainty in estimates for the key Brazilian arabica coffee crop, harvesting of which has just begun.
“Coffee analysts are at war over the Brazil arabica crop estimates,” Rabobank said, noting estimates ranging from 28.5m bags to 35.5m bags.
“Never before in recent history has there been such disparity in estimates so close to the arabica harvest.”
The comments follow an attack by the Conselho Nacional do Café producers’ group on upbeat estimates for the Brazilian harvest, which it says may reflect a desire by buyers to low prices.
(Source – http://www.agrimoney.com/news/rabo-cuts-wheat-price-hopes-even-as-futures-rise–8368.html)