Soft commodities 'better bet than grains' for 2014

Soft commodities look a better bet for gains than grains in 2014, with cocoa to hit three-year highs, Commerzbank said, forecasting a waning performance by livestock futures.

Among the main grains and oilseed contracts, only Chicago corn will managed headway next year, boosted by the prospect of a drop in US sowings next year, as weak prices prompt farmers to seek alternative crops.

"Assuming normal weather conditions, the relative availability of corn will probably decline compared with wheat in 2014-15, leading to a narrowing of the price difference between corn and wheat," the bank said.

"We also expect corn to recover in absolute terms, even if the high prices of 2011 and 2012 are likely to remain a long way off."

'Structurally driven deficits'

However, soft commodities, which have generally reported losses this year, will see price rises, especially cocoa, which in London will rise to £1,850 a tonne by the end of the year.

That would be the highest prices since September 2011, and is set to be followed by further gains in 2015, reflecting expectations voiced by the International Cocoa Organization of "structurally driven deficits".

Commerzbank also quoted a caution by Olam International, the agricultural commodities trader, that prices will "have to rise again strongly, despite the increases of recent months, in order to sustainably attract investment to the cocoa sectors of the key cocoa-producing countries".

The bank added: "Given market deficits and the need to invest in the cocoa sector to keep pace with rising demand in the mid-term, we believe cocoa prices will continue to rise."

'Scrimping on fertilizer'

Sugar prices will recover a little too, averaging 19.5 cents a pound in the last quarter of next year, given that they have already falling below production costs in many countries, implying a disincentive for output ahead.

And arabica coffee futures will recover to end the year at 110 cents a pound, reviving further in 2015 too, although only after hitting 100 cents a pound as an average for the April-to-June quarter.

"As a minimum, the current low price phase will lead to lower yields in the medium term due to scrimping on fertilizer and crop protection," the bank said.

The "more diminished outlook" for production from 2015-16 "should allow prices to rise slowly, so that after an intermittent low during the Brazilian harvest in 2014 we expect the price of coffee to recover".

'Optimistic regarding supply'

But cotton prices are seen falling to 70 cents a pound for the first time since 2012, pressed by the likelihood that China will revamp its generous state support regime which has been a big prop to values domestically and abroad.

And among grains, for wheat, the prospect of a rise in area, and another strong harvest, will keep pressure on prices, which should average $6.50 a bushel in Chicago and E190 a tonne in Paris in the last quarter of 2014.

"We are optimistic regarding the supply in 2014, which should be reflected in falling prices, particularly in the second half of 2014," Commerzbank said.

For soybeans, the bank saw a fall to $11.50 a bushel, a price last seen in January last year, as relatively high current values encourage production.

"Against the backdrop of expectations of a global surplus in 2013-14 and a positive outlook for the 2014 US harvest, a feeling of scarcity is unlikely to become established on the soybean market in the foreseeable future."

The bank forecast livestock finishing next year a little below current levels, at 83 cents a pound for lean hogs and 132 cents a pound for live cattle.