Arabica, sugar prices face a tumble – but not robusta, cocoa values

Arabica coffee and raw sugar futures face a tumble – but robusta beans and London-traded cocoa should hold their ground, with the chocolate ingredient helped by “a sizeable supply deficit” besides sterling weakness.

Commerzbank raised price forecasts for all four commodities in the July-to-September period, raising expectations for average cocoa and sugar futures prices in the last quarter of 2016 too.

Nonetheless, the 0.5-cent upgrades in expectations of New York-traded raw sugar prices, to an average of 18.0 cents a pound for the coming quarter, left its forecasts well below the futures curve.

October futures, for instance, were on Tuesday trading at 19.96 cents a pound, a rise of $0.32 cents on the day.

The bank flagged the threat posed by enhanced Brazilian output to ideas of a squeeze on supplies from factors such as a hangover from two seasons of disappointing rains in India.

‘More sugar supply’

“The significantly higher sugar production that is expected in Brazil is likely to see more sugar supply reaching the market from Brazil in the coming months,” the bank said.

It noted expectations from official Brazilian crop bureau Conab of a 3.0m-tonne rise to 34.3m tonnes in sugar output from the country’s key Centre South region in 2016-17.

“Nationwide, 11% more sugar cane is expected to be turned into sugar than last year.”

The bank forecast a “somewhat-lower sugar price of 17.5 cents per pound by year’s end”, although it reassured that a further decline was unlikely, saying that “the anticipated supply deficits are likely to preclude any more pronounced price slide”.

‘Lower arabica price’

For New York-traded arabica coffee, the bank nudged higher its forecasts for prices by up to 10 cents a pound, pushing to 130 cents a pound the estimate for values in the October-to-December quarter.

However, that was 13.95 cents a pound below the level that December futures were trading at on Tuesday, with Commerzbank noting expectations of a strong Brazilian crop of the bean too.

Conab has forecast a 26% jump in output to 40.3m bags.

“The prospect of a higher Brazilian coffee crop points to a lower arabica price in the coming months, especially since the Brazilian real is also likely to depreciate again,” the bank said.

‘Doubtless perform better’

However, on robusta coffee, it forecast prices averaging $1,700 a tonne in both the next two quarters, supporting by drought hits to crops of the variety in Brazil, Vietnam and Indonesia.

“Although rainfall in Vietnam has now provided some relief, robusta is likely to remain tighter.

“The robusta price will doubtless perform better on the back of this tighter supply,” and cut to 1.6, from nearly 2, the ratio of arabica: robusta prices.

November futures were on Tuesday trading at $1,712 a tonne in London.

‘Sizeable supply deficit’

And for London cocoa, it forecast futures remaining near the five-year high of $2,412 a tonne reached on Monday, upgrading its estimate for the next quarter by £150 a tonne to £2,400 a tonne.

The revision reflected in part the dent to sterling from the UK’s vote last week to quit the European Union.

However, Commerzbank also highlighted the support to values from “disappointing crops” in the key West Africa producing region, with deliveries to Ivory Coast ports, for instance, running this season 11% behind the pace of 2014-15.

“To cap it all there are problems with quality – in many cases beans are too small to satisfy the requirements for export.

“A sizeable supply deficit on the cocoa market is realistically on the cards in 2015-16.”