Crops represent the worst bet in commodities over the next year, Goldman Sachs said, cutting forecasts for coffee and sugar values, and sticking with forecasts for corn and soybean prices well below the futures curve.
However, livestock futures face a more stable outlook, after their heavy falls, particularly for lean hogs, so far this year.
The bank forecast the prices of grains and soft commodities, as measured by the agriculture segment of the S&P GSCI Enhanced commodity index, would fall by 7.5% over the next year, having already fallen by more than one-quarter over 2013 and 2014, and by 8.6% so far in 2015.
The outlook contrasted with expectations of a 9.5% rise in energy values, despite the bank taking a downbeat view of oil price prospects for the next months, and a 2.2% increased forecast for precious metals.
Sugar, coffee downgrades
The gloomy forecast for agriculture prices reflected in part a sharp downgrade in prospects for sugar values, with Goldman cutting to 13.0 cents per pound, from 17.5 cents per pound, its forecast for New York futures on three-, six- and 12-month horizons.
The bank, noting the pressure on prices from a weaker Brazilian real and India’s decision to reintroduce export subsidies, was also sanguine on the threat from a potential El Nino, which is broadly seen as a 50-60% likelihood this summer.
“Given the relatively mild current conditions we do not expect a large negative effect on the 2015-16 crop,” Goldman said.
The bank also lowered its forecasts for arabica coffee prices, by 25 cents per pound to 150 cents per pound, on three-, six- and 12-month horizons, although these estimates remain above the futures curve.
“Weather conditions have remained more favourable outside Brazil, in particular in Colombia, where exports are up by more than 8% year on year.”
‘Prices will moderate’
For grains, while the did not make any adjustments to its price estimates, beyond rolling forecasts forward to reflect the passage of time, its ideas over prospects for futures remained largely below levels investors are expecting.
In corn, Goldman forecast futures standing at $3.75 a bushel in a year’s time, below the $4.21 ½ a bushel that March 2016 futures were pricing in on Friday.
“With recently improved weather conditions in South America, global [corn] production for 2014-15 should remain ample and we continue to expect prices to moderate from current levels,” the bank said.
Soybean futures were, for similar reasons, seen falling to $8.75 a bushel on a one-year horizon – nearly $1 a bushel below the level that investors are betting on.
However, the bank was more upbeat over prospects for Chicago wheat futures, seeing prices sticking at around $5.30 a bushel from the three-month horizon, a price investors do not see being reached until late 2015.
However, Goldman was a little more upbeat than the market on cocoa price prospects, seeing values stick at around $3,000 a tonne, citing a weather setback to West Africa’s production outlook.
“Much stronger than average Harmattan winds in West Africa are likely to weigh down global supply for the current crop year.”
And on livestock futures, it foresaw only a 0.8% drop over the next year, after the fall of some 10% so far in 2015, largely thanks to better US hog production prospects, with the impact waning of the outbreak of porcine epidemic diahorrea virus (PEDv).
The bank acknowledged “downside risks” to estimates for hog futures downgraded 15 cents to 80 cents a pound on the three-month horizon.
Forecasts for live cattle futures were held steady, seeing a decline to 140 cents a pound on a 12-month horizon, a little below the level that investors are pricing in.