April 2016 Marketing Communication Stefan Vogel Head of ACMR; Global Sector Strategist [email protected]+44 20 7664 9523 Tracey Allen Senior Commodity Analyst [email protected]+44 20 7664 9514 Carlos Mera Senior Commodity Analyst [email protected]+44 20 7664 9512 Charles Clack Junior Research Analyst [email protected]+44 20 7664 9756 Flood related production losses in Argentina, rains in southern US and sustained dryness in Brazil’s safrinha corn belt triggered overly bullish fund positioning. Longer term, balance sheets will have to deal with a shift of exports away from South America, to be supplied by North America. Currency is expected to remain a major influence on softs as the impeachment proceedings in Brazil unravel. WHEAT SUGAR Price forecast largely maintained as speculative rally falls back to earth Excellent US and EU crop and growing conditions weigh on prices in short term Black Sea Region to experience a 9% YOY decline in production—EU to make up exports May WASDE to bring 2016/17 projections. We expect US balance sheet to remain balanced Range-bound trade expected as Centre/South raws come online and regional stocks tighten World production deficit of -6.8m tonnes maintained Rapid start to the 2016/17 Centre/South harvest as dry weather sets in May will be a telling month for the climate outlook, but a shift in ENSO will not solve the production challenges CORN COFFEE Price forecast unchanged, but volatility is expected to continue Brazilian corn market needs to be watched due to dryness stressing safrinha and potential imports Large-scale fund short-covering May WASDE to bring volatility and first 2016/17 forecast Our robusta price expectations have been reached, but arabicas still undervalued Our forecast of USD 1,560/tonnes, made after our crop field tour in Brazil, has been reached There is increasing consensus on a balanced market in 2016/17 Demand in the US and Japan is remarkably high SOYBEANS COCOA CBOT Soybeans to remain volatile due to South American crop issues and US plantings ahead Heavy rains reduced South America’s output and bring additional export business to US Funds extended their net long position USDA’s May WASDE to bring price volatility, as it shows first 2016/17 US and global forecasts. Nearby futures prices have been adjusted higher due to recent rally Long-term bearish fundamentals still remain in place and will ultimately push prices lower The funds are once again interested in commodities, pushing nearby prices higher Price forecast raised as arrivals in Ivorian ports decelerated, but still bearish Arrivals in Côte d’Ivoire disappointing after a better-than-expected main crop Ghana may be seeing a similar slowdown Grinding data slightly disappointing PALM OIL COTTON Positive in near term, but bearish in the 2H 2016 Constrained production, inventory drawdowns and the recent G&O complex rally supports MDE-Bursa prices Expected slower demand, especially out of China, to weigh on prices Improved production in 2H and a tight spread to CBOT Soy Oil should pressure prices Bullish view maintained for new crop cotton futures Persistent wet conditions across the US Mid-South threaten acreage expansion Clarity on the release of China’s cotton reserves provides comfort May WASDE expected to show a consecutive production deficit Agri Commodities Monthly April 2016: Ags overshot as speculators buy on weather woes
Transcript
April 2016
Marketing Communication
Stefan Vogel Head of ACMR; Global Sector Strategist
Flood related production losses in Argentina, rains in southern US and sustained dryness in Brazil’s safrinha corn belt triggered overly bullish fund positioning. Longer term, balance sheets will have to deal with a shift of exports away from South America, to be supplied by North America. Currency is expected to remain a major influence on softs as the impeachment proceedings in Brazil unravel.
WHEAT SUGAR Price forecast largely maintained as speculative rally falls back to earth Excellent US and EU crop and growing
conditions weigh on prices in short term Black Sea Region to experience a 9% YOY
decline in production—EU to make up exports May WASDE to bring 2016/17 projections. We
expect US balance sheet to remain balanced
Range-bound trade expected as Centre/South raws come online and regional stocks tighten World production deficit of -6.8m tonnes
maintained Rapid start to the 2016/17 Centre/South harvest as
dry weather sets in May will be a telling month for the climate outlook,
but a shift in ENSO will not solve the production challenges
CORN COFFEE
Price forecast unchanged, but volatility is expected to continue Brazilian corn market needs to be watched due
to dryness stressing safrinha and potential imports
Large-scale fund short-covering May WASDE to bring volatility and first
2016/17 forecast
Our robusta price expectations have been reached, but arabicas still undervalued Our forecast of USD 1,560/tonnes, made after our
crop field tour in Brazil, has been reached There is increasing consensus on a balanced market
in 2016/17 Demand in the US and Japan is remarkably high
SOYBEANS COCOA CBOT Soybeans to remain volatile due to South American crop issues and US plantings ahead Heavy rains reduced South America’s output
and bring additional export business to US Funds extended their net long position USDA’s May WASDE to bring price volatility, as
it shows first 2016/17 US and global forecasts. Nearby futures prices have been adjusted higher due to recent rally Long-term bearish fundamentals still remain in
place and will ultimately push prices lower The funds are once again interested in
commodities, pushing nearby prices higher
Price forecast raised as arrivals in Ivorian ports decelerated, but still bearish Arrivals in Côte d’Ivoire disappointing after a
better-than-expected main crop Ghana may be seeing a similar slowdown Grinding data slightly disappointing
PALM OIL COTTON Positive in near term, but bearish in the 2H 2016 Constrained production, inventory drawdowns
and the recent G&O complex rally supports MDE-Bursa prices
Expected slower demand, especially out of China, to weigh on prices
Improved production in 2H and a tight spread to CBOT Soy Oil should pressure prices
Bullish view maintained for new crop cotton futures Persistent wet conditions across the US Mid-South
threaten acreage expansion Clarity on the release of China’s cotton reserves
provides comfort May WASDE expected to show a consecutive
production deficit
Agri Commodities Monthly April 2016: Ags overshot as speculators buy on weather woes
The CBOT Wheat forecast is revised marginally higher in the nearby quarter, after trading in a massive USc 58/bu range through April—from near-contract lows to five-month price highs in the active July contract. The rally was almost exclusively speculative, fuelled by Non-Commercials covering their record net short position. We maintain our longer-dated forecasts on a generally favourable new crop outlook, particularly for the US, with the USDA’s latest condition ratings pegging the crop at 59% good/excellent, some 17% higher than both last year and the five-year average. Furthermore, soaking April rainfall across the US Southern Plains quashed dryness concerns and provides soil moisture surplus across the region—driving expectations for further US condition improvements and, consequently, a return to USc 470/bu price levels. EU crop conditions are also very good (e.g. in France, at 91% good/excellent) and are on par with last year’s record-yielding crop, which, given the absence of imminent weather threats, should maintain heavy EU supplies into 2016/17. EU exports will benefit from potential cuts in 2016/17 Black Sea production, particularly across Ukraine. Dry autumn planting conditions across Ukraine have driven concerns of a 15% reduction in harvested area this year, to the lowest in a decade, along with a potential 6m tonne YOY cut in exports—to 9m tonnes. Black Sea export cuts of this scale should be accommodated by EU origins, as exports grow again to 34m tonnes in 2016/17, up 4m tonnes YOY, supporting Matif Wheat to EUR 170/tonne late this year. Global demand has relied more heavily on the EU through April, as low Russian producer selling holds FOB prices there at near USD 190/tonne, a USD 20/tonne premium to French wheat. Consequently, weekly EU export licences reached a marketing-year high two weeks ago. Spring plantings are still underway in the Black Sea region, which, coupled with significant weather risk, should still allow for variation in 2016/17 fundamentals and prices. The May WASDE provides the next major data point for international wheat prices, providing the first 2016/17 estimates this year. Given the USDA’s low 49.6m all-wheat area acreage, we expect a relatively balanced US supply-and-demand scenario this year, based on a trend yield of just over 45 bu/acre. However, a reported 14% YOY reduction in spring area should continue to favour spring wheat prices going forward, having driven the July 2016 Minneapolis-Kansas City spread to 18-month contract highs. Furthermore, the USDA’s Argentine 2016/17 wheat numbers will also be particularly interesting, as it is expected that farmers will increase wheat and corn plantings and cut back soybeans.
WHEAT
CBOT Wheat price forecast largely maintained
Price forecast largely maintained as speculative rally falls back to earth Excellent US and EU crop and growing
conditions weigh on prices in short term Black Sea Region to experience a 9% YOY
decline in production—EU to make up exports May WASDE to bring 2016/17 projections. We
expect US balance sheet to remain balanced
Source: Bloomberg, Rabobank, 2016
A 6m tonne YOY reduction in Ukrainian wheat exports should shift demand to EU origins, supporting Matif futures
The USDA’s prospective all-wheat acreage of 49.6m acres and a 45.6 bu/acre yield will see US stock levels maintained
The CBOT Corn price forecast is left unchanged, as the market is torn between a bullish dryness story in Brazil and bearish pressure from a large US acreage. The biggest difference to last month is that parts of the Brazilian safrinha corn areas have faced dry weather conditions and need rains in May in order to limit yield losses. Funds have covered some of their large net short position, which spurred the recent CBOT Corn rally; however, for the new crop, close to USD 4/bu is overvalued. The Brazilian corn sector is, in many areas, crucial for CBOT futures. Domestic prices are at record highs (see our special Brazil corn price infographic), driven by strong export demand and weather concerns in the safrinha areas. Last week, Brazil temporarily removed the 10% import duty on corn from countries outside of Mercosur, which might result—aside from imports from Argentina—in some US corn being shipped to Brazil. However, with the safrinha corn harvest starting in July, such shipments will most likely be temporary. Safrinha corn needs to be watched closely in the coming weeks as dryness covers about 40% of the areas, which could lead to a drop of the total Brazilian corn crop, to below 80m tonnes, compared to 85m tonnes last season. Due to heavy rains, Argentina’s corn harvest is well behind last year and currently only about one-quarter complete, resulting in very limited FOB offers out of Argentina. The USDA might lower the 2015/16 South American crops in the May WASDE, but will have to use their very large US corn planted area forecast of 93.6m acres (+6% YOY), which, combined with a trend yield, will show a steep 2016/17 US corn ending stock increase. Ukraine’s 2016/17 corn acreage is expected to grow almost 10% YOY, which should support the first production and export increase in three years. In addition, the EU crop will recover from last year’s heat-reduced level. China’s corn policy changes could have massive implications for the future. (See our recent web article.) Chinese corn stocks will only decline slowly, at least as long as the country does not become a large exporter, which, despite recent rumours, seems unlikely due to WTO rules. Reduced Chinese feedgrain imports will be bearish for sorghum and feed barley.
Dryness is stressing Brazil’s safrinha crop, while heavy rains delay Argentina’s harvest and result in crop losses (Precipitation anomalies 27 Mar-25 April)
US plantings are moving quickly, and US farmers might have used the recent rally to hedge some of their new crop and to ensure a better profitability of the corn and soybean plantings
CBOT Soybeans have gained about 14% since the beginning of March. The November 2016 contract made a 16-month high, well above USD 10/bu, due to short covering and fresh money flowing in after heavy rains in South America resulted in harvest and export concerns there, which could drive up export demand for US soybeans in the coming months. Due to heavy rains and flooding, Argentina’s soybean harvest is delayed, at only 20% complete (compared to 50% on average), and output might only reach around 55m to 58m tonnes, compared to 60m tonnes forecast one month ago. The Brazilian crop at 97m to 100m tonnes are also below the earlier projected 100m to 103m tonnes. The total reduction of the South American production forecasts adds up to more than 7m tonnes of soybeans—and thus output will be lower YOY. Given strong global demand, US supplies will have to substitute for these losses, which has spurred the recent soybean rally. Chinese soybean imports in March posted a record for the month and, at 6.1m tonnes, were up 36% YOY. We consider USD 10/bu for new crop soybeans overstated, and maintain our low price forecast for later this year. We still believe that US farmers will plant large amounts of corn and soybean acres, and we keep our projection of over 83m acres of soybean plantings. Even though the 2015/16 US ending stocks might decline from current USDA projections, the new season should still bring a further increase in carry-out. The next USDA WASDE on 10 May will feature USDA’s first estimate for the US and global 2016/17 supply-and-demand balance sheet. For US soybeans, the USDA will have to use the 31 March planting intentions number of 82.2m acres, which, combined with a trend yield, should show a crop of at least 3.8bn bushels. It is expected that the USDA will show an improved 2016/17 export number compared to this season, both due to the recent losses in the South American crop, as well as a potential shift in next year’s crop in Argentina, away from soybeans into corn and wheat. However, US 2016/17 ending stocks should still build further year-on-year, to above 500m bushels. The coming weeks will determine if US farmers potentially exceed the low USDA acreage forecast, while the summer weather will determine yields, and therefore CBOT Soybeans can still show substantial price swings in both directions. Furthermore, USDA’s soybean production forecast for 2015/16 and also for next year’s Argentine crop will be interesting, as there is a potential of a 10% YOY decline if farmers switch soybean acres to corn and wheat.
South American production estimates lowered recently, by 7m tonnes, due to heavy rains and flooding
Chinese soybean imports remain at a very strong pace and are expected to remain high in the coming months
CBOT Soybean price forecast increased in the near term
CBOT Soybeans to remain volatile due to South American crop issues and US plantings ahead Heavy rains reduced South America’s output
and bring additional export business to US Funds extended their net long position US plantings to gain traction in May USDA’s May WASDE to bring price volatility,
as it shows first 2016/17 US and global forecasts.
Soybean product futures have all moved to near-term highs in just the past week, following other commodities higher. While soy oil has been rallying (+800 points) since last August, soymeal also rallied to trade over USD 300/bu for the first time since November 2015. We have adjusted our nearby futures price projection to reflect the rally. However, the underlying overall fundamentals of these markets have not completely changed. What has changed is the funds’ renewed interest in the commodity markets. The funds have seen net longs of soy oil since February 2014 and are currently holding a near-record long position. Just in the last week, the funds have reversed their net short position in soymeal to a net long. With rising crude oil prices, weather woes in South America and talk of a potential La Niña-inspired summer drought, the funds have been able to attract money back into commodity markets with a bullish story. Stay tuned! US soy oil also remains the star with respect to exports. Year-to-date, US soy oil and soymeal exports are +12.1% and -16.4%, respectively, vs. the 2014/15 crop year. The slowdown in the global economy, the strong US dollar and increased competition from Argentina have all slowed US soymeal exports. In addition, this is the first time since the 2005/06 and 2006/07 crop years that US soybean stocks have been adequate. Consequently, soymeal end users do not feel the pressure to buy ahead and to lock in supply. While the opposite is true for soy oil, the market is nervous about future availability of vegetable oil supplies, due to the reduced South American crop and uncertainties facing palm oil. Canadian oilseed acres are forecast to be down this year. Planted canola acres are projected to be down 3.7% from last year, to 19.3m acres. If realised, this would be the lowest canola acreage since 2011. At the same time, soybean acres are expected to decline to 5.3m acres, down 1.9%. This is a continuing trend of declining canola acres, and it reverses several years of increasing soybean acres. End users have already begun seeing higher Canola oil basis levels. US accumulated exports of soy oil appear strong relative to previous years; however, the USDA’s forecast seems ambitious
Non-Commercials were net short most of 2016 but short covering in April was very impressive
Palm oil prices remain well supported due to constrained production and a rally in the wider G&O complex. The MDE-Bursa Palm Oil price crossed the MYR 2,700/tonne mark and, despite a brief setback, continues to find support from expectations of lower Q2 production. In addition, prices find additional support from a bullish turn in the soybean complex, where soybean prices rallied 15% MOM. The palm oil price will continue to challenge the MYR 2,800/tonne mark in the near term; however, we believe prices will soften from current levels in 2H 2016, with a recovery in production. Stocks continue to decline, supporting higher prices in nearby months. Malaysia March palm oil production increased 17% MOM to 1.22m tonnes, according to MPOB, but remained down 18% YOY and at the lowest levels for March since 2012. The lower FFB yield cycle has been ongoing since November 2015, and is currently some 17% below the five-year average. However, exports increased 23% MOM, remaining strong at 1.33m tonnes and beating trade estimates by 7%—now 13% higher YOY. Stronger exports and relatively weaker production growth resulted in inventory declines of 13% MOM, to 1.88m tonnes (below the psychological mark of 2m tonnes), and stocks remain on par with previous-year levels. We expect production to increase 7% MOM in April; however, this would still be lower than last year’s 13% increase, and stocks are therefore expected to decline towards 1.7m to 1.8m tonnes. Indonesia March production also declined 7.5%, and stocks fell by 12% MOM. The rainfall in Indonesia has been normal and is forecast to remain so through July, which should support improved production in 2H 2016. Smaller differential to CBOT Soy Oil to limit the demand and cap price rally. The near-month MDE-Bursa Palm Oil discount to CBOT Soy Oil dropped to USD 69/tonne in March, against the five-year average of USD 155/tonne. This smaller spread will continue to hurt palm oil demand in the coming months, despite the approaching festival months. Palm oil exports have been strong MYTD; however, we expect demand from key buyer China to weaken. China’s palm import has been running high, rising by 13% YOY during the first six months of MY 2015/16 (Oct-Sep). Chinese port inventory, at almost 900,000 tonnes, is about twice as high as a year ago and, combined with strong soybean imports, will restrict future palm oil import volume. According to SGS, Malaysian palm oil exports for first 25 days of April remain flat MOM, at 883 thousand tonnes.
PALM OIL
MDE-Bursa Palm Oil price forecast slightly increased for nearby month
Positive in near term, but bearish in the second half of the year Constrained production, inventory drawdowns
and the recent G&O complex rally supports MDE-Bursa prices
Expected slower demand, especially out of China, to weigh on prices
Improved production in 2H and a tight spread to CBOT Soy Oil should pressure prices
Source: Bloomberg, Rabobank, 2016
Malaysia stocks declined 13% MOM; however, a further decline is expected in April, before improvement in 2H 2016
The palm oil rally further narrowed the CBOT Soy Oil-MDE-Bursa Palm Oil differential to below USD 69/tonne, well below average
Range bound trade is expected through the coming month, as the market balances the world production deficit of -6.8m tonnes rv and the imminent availability of Centre/South raw exports. We see limited downside price risk in the short term, with a stabilisation of the ethanol parity for now, weather risks still in play for much of Asia and a more supportive FX outlook in the short term. The drawdown on regional inventories is also becoming more apparent, with tightening stocks in India and the EU supporting domestic prices. Our ICE #11 price forecast is maintained, with Q2 at USc 15.5/lb, easing through Q3 to USc 15/lb on a seasonal build in exportable supplies. Looking to the 2016/17 season, the prospect of a consecutive deficit continues to provide support; however, expected weakness of the Brazilian real and associated producer selling are expected to limit the upside for prices in US dollar terms, to USc 15.5/lb through Q4 2016 and Q1 2017.
Brazil remains front of mind, as the harvest regains momentum and the impeachment process progresses. The 2016/17 Centre/South harvest has progressed well, following the onset of dry conditions and limited rain interruptions. We estimate that over 30m tonnes of cane were crushed in the first two weeks of April—which would be a record for the first fortnight. This pace initially prompted a faster-than-normal drop in ex-factory ethanol prices (down 30% MOM from the March peak), which have now stabilised around BRL 1.3/litre. The weather outlook into May remains beneficial, with average to below-average conditions, and we maintain our sugar production forecast of 34m tonnes, assuming a mix of 43.8%. On the FX front, the Brazilian real is expected to remain volatile. Under an impeachment scenario, the currency is expected to appreciate to 3.3 against the US dollar on a short-term basis. Meanwhile, on a six- to twelve-month basis, we maintain a bearish view and forecast a depreciation to USD/BRL 3.8.
May will be a telling month, when the predictive capacity of climate models improves, and we expect to see clarity emerge on the outlook for the El Niño Southern Oscillation. Weather remains a risk, and the impact of El Niño is still being felt—most acutely in Asia, where harvests have disappointed. However, a shift in the outlook to neutral or La Niña will not immediately remove the production risks. It will take time to restore reservoir levels and soil moisture in Maharashtra, and it will take stronger price signals to boost China’s cane area. We maintain a supportive longer-term outlook for the ICE #11 based on these production constraints, but acknowledge that FX pressures are likely to limit the upside in US dollar terms.
Centre/South harvest conditions are looking favourable across Brazil as we progress into May, enabling a quick pace
Hydrous ethanol prices are stabilising in Sao Paulo, after falling faster than is seasonally normal through March/April
Arabica coffee price forecast decreased, but still bullish
Our robusta price expectations have been reached, but arabicas still undervalued Our forecast of USD 1,560/tonnes, made
after our crop field tour in Brazil, has been reached
There is increasing consensus on a balanced market in 2016/17
Demand in the US and Japan is remarkably high
Source: Bloomberg, Rabobank, 2016
Our ICE Robusta and Arabica forecasts have been reached in May, and we remain neutral on robustas but slightly bullish on arabicas after last week’s selloff. After our Brazil February field trip showed a significant drop in robusta output, the ICE Robusta contract steadily climbed, from USD 1,413/tonne at the end of February to USD 1,581/tonne as of 26 April (+12%). As of late, there is a second factor influencing ICE Robusta prices: the Vietnamese Highlands saw drier-than-normal weather in the past season, so the ideal conditions for the coffee would be an early return of the rains, which have only marginally increased this week (depending on the region, the wet season starts in late April or early May). This is not too concerning at the moment, but we can expect more market support in case there is no significant rain in the forecast by early May. We see more consensus on 2016/17 being a more or less balanced global market vs. last year’s expectations of a large 2016/17 surplus. Our Brazil crop survey showed a decent, but not huge, total crop in Brazil, whereas Vietnam 2016/17 is not likely to be a near-record crop—as a result of the dry weather last year. Colombia saw some dryness relief, but it is still uncertain whether production in the remainder of the 2015/16 crop year (ending in October) will be higher or lower than last year. Dryness was already a concern last year, but production levels have remained very strong, largely helped by good internal prices. In addition, there is the argument of how accurate weather data can be in a mountainous area with a high level of ambient humidity. From April to September 2015, Colombia produced 7.1m bags, which at the time was a 1m-bag YOY increase. We are not certain whether production in the remainder of the season will be higher or lower than last year, as high prices mean farmers utilise a high level of fertilisers. This may help the trees withstand the dryness to an extent that should not be underestimated. Brazil arabica exports continue to be very high, at the same pace as in March, and we dismiss any dry weather concerns in arabica areas, as soil moisture is excellent. Demand has been steady in the EU-28, but US disappearance is coming in particularly strong. Four-quarter rolling disappearance in the EU for the whole of the 2015 calendar year was 0.3% down YOY, but in the US, it was 2.9% higher YOY (with January and February 2016 data suggesting a further increase in Q1 2016). Global demand is expected to continue to grow at 1.7% per annum in the next five years, as low prices incentivise consumption.
The uptrend of Colombian production has been impressive and remains an unknown that will cause volatility
Some regions in Colombia are a little dry, but high internal prices will help production. % of normal rainfall Dec 15-Apr 16
We increase our price forecast marginally, as arrivals in Côte d’Ivoire decelerated more than expected, but we expect arrivals’ pace to recover slightly. Arrivals of raw cocoa beans to Côte d’Ivoire ports were reported at 1.25m tonnes (October to April 25), down from 1.35m tonnes a year earlier. This is a 7.8% drop from last year’s record crop levels, but as arrivals to ports (up to the end of January) were at the same pace of last year’s, this deceleration was the main cause for the market strength in April. However, we expect arrivals to pick up somewhat, from the current very low levels, in the remainder of the season. Following the strength of the Harmattan, we made a 30,000 tonne reduction to our Ivorian 2015/16 crop estimate in February. However, now that we see very low arrivals, we have made a further 20,000 tonne reduction to the total Ivorian 2015/16 crop of 1.65m tonnes—yielding a global S/D deficit of 100,000 tonnes in 2015/16. Rainfall after the Harmattan has been fairly normal in West Africa, which will help the development of the next main crop in 2016/17. We still believe in a large surplus of 0.1m tonnes in the 2016/17 season. There is no initial reason to believe that Côte d’Ivoire will not reach another record crop, and we make a 30,000 tonne increase to our Ivorian estimate, to 1.78m tonnes. Estimates for 2016/17 are still very preliminary, but considering a lower pod load in the trees at the moment and good initial rainfall, we have to expect an increase in production. In contrast, the weather in Bahia, Brazil, was very dry in Q4 2015 and again since February 2016, but we are confident that very high internal prices in Brazilian reals have incentivised the use of fertilisers, which should alleviate losses. Grindings have been mixed: On the one hand, Q1 2016 grindings declined in the US (-2.2% YOY, which was expected due to a factory closure in 2015) and Europe (-0.2% YOY). On the other hand, they were stronger than expected in Asia (+3%). Out of the 4,173 tonne increase reported in Asia in Q1 2016, 1,802 tonnes correspond to Malaysia. There is anecdotal evidence of accumulating finished product inventories, so we are not overly optimistic on demand. For the time being, we keep our expectation for a 1.5% increase in global grindings in 2015/16, as the expanding volume of grindings in West Africa is still an unknown.
90-day rainfall anomaly to 24 April shows normal weather in West Africa (after the Harmattan winds). % of normal rainfall:
Stocks to grindings ratio expected to reach the lowest level in three decades at the end of 2015/16, but recovery is expected
NY Cocoa prices increased but still below futures curve
Price forecast raised as arrivals in Ivorian ports decelerated, but still bearish Arrivals in Côte d’Ivoire disappointing after a
better-than-expected main crop Ghana may be seeing a similar slowdown Grinding data slightly disappointing
Source: Bloomberg, Rabobank, 2016
unit Q3'15 Q4'15 Q1'16 Q2'16(f) Q3'16(f) Q4'16(f) Q1'17(f) Q2'17(f)ICE NY USD/t 3,203 3,241 2,916 3,050 2,950 2,900 2,850 2,800ICE London GBP/t 2,138 2,220 2,133 2,200 2,140 2,080 2,080 2,050
1,900
2,300
2,700
3,100
3,500
USD
/ t
onne
ICE NY cocoa Previous forecast Rabobank forecast
April 2016
Bullish view maintained for the new crop cotton futures, and neutral outlook for the old crop, following the recent short covering rally. Clarity around China’s reserve stockpile management, persistent wet conditions across the US Mid-South (threatening acreage) and supportive outside markets have altered the balance of risks in the cotton market. We have long anticipated this correction, based on expectations of tightening world market fundamentals and a 9m tonne production deficit—which the USDA has now moved towards. The combination of these factors provided the impetus for speculators to cover their record net short position. July 2016 futures on the ICE #2 rallied through our long-held price forecast of USc 63/lb, which we maintain, while establishing a net long position of 23,298 lots. New crop futures are expected to trade higher through the year, towards USc 67/lb, as US acreage expectations are unlikely to be met in our view. We also anticipate a consecutive world production deficit of over 10m bales in 2016/17, and this will continue to provide support in our view. The upcoming May WASDE is expected to show a deficit, but it may take time to reach this magnitude. Persistently wet conditions across much of the US Mid-South continue to challenge the potential expansion of cotton acres this year. While still early in the planting window, we anticipate that the ongoing wet conditions, on top of heavy soil moisture profiles, will drive some intended cotton area into corn and mainly soybeans—particularly in southern Arkansas. Coupled with the recent rally in both corn and soybeans, we expect the national expansion to be limited to 4% YOY, at 8.8m acres. We maintain our production forecast of 14.4m bales. Clarity on the release of China’s cotton reserves met market expectations and has alleviated bearish concerns. China’s National Development and Reform Commission will auction 2m tonnes of cotton (9.2m bales) from May to August 2016—which was in line with trade expectations. Previous auctions have been well undersubscribed, and this volume will be manageable in our view. With 5m bales of imports, this will still reduce stocks by an estimated 4m bales.
Speculators covered their record-large net short position through April, driving a correction in the ICE #2
Wet planting conditions in the US Midsouth are expected to remain a challenge into May
