Coffee and sugar prices to remain low
- Soft commodity prices are under pressure
- Coffee and sugar price forecasts have been downwardly adjusted
- Price levels to remain low due to production and consumption imbalances
All soft commodities suffering from price volatility
Non-fundamental factors – currency movements, global and domestic political developments and weather conditions – are chiefly to blame for the volatility of cereal prices (soya, corn and wheat) For months now, ABN AMRO has observed cereal prices hovering around five-year lows. This is largely attributable to high stock levels. Since the beginning of 2015, wheat prices have declined by as much as 11 per cent, while corn and soya prices have dropped 4 per cent. Average prices for coffee, cocoa and sugar also trended downwards. Sugar was hardest hit, falling by 15 per cent, while coffee and cocoa prices declined by 11 and 6 per cent respectively.
Coffee harvest better than expected, prices suffer
In the months ahead, ABN AMRO expects supply and demand factors to have a bigger impact on prices. Sugar production is expected to remain high. As for coffee and cocoa, ABN AMRO expects prices to bottom out, as production will be at best barely enough to meet demand. Global coffee production is currently 3.5 per cent lower than a year ago, though higher than projected early this year. Given anticipated global coffee consumption of 149 million sacks, ABN AMRO foresees short supply, which means the prices are unlikely to fall any further. Cocoa production, meanwhile, is expected to seriously lag previous years, with Ghana lowering its production forecast by 20 per cent.
Sugar price falls
In recent months, currency movements have been the main source of heavy pressure on prices of wheat, sugar and coffee, ABN AMRO believes. This has led the bank to downwardly adjust its price forecasts for these commodities. For cocoa, on the other hand, no major price shifts are expected. Cereal production is unlikely to reach new highs in the months ahead, but 2015-2016 harvests will still be at elevated levels. ABN AMRO therefore expects cereal prices to remain at their current lows for several months to come.