Goldman Sachs sees risk of upside for sugar
Published: 03/17/2010, 10:49:15 AM
Goldman Sachs has added its voice to those warning of the potential for a rebound in sugar, flagging "upside price risk", in a report which raises questions over the resilience of cotton's rally, according to Agrimoney.
The investment bank cut its forecasts for sugar prices, with its 12-month outlook cut by 3 cents to 17 cents a pound, in line with New York futures prices.
The reductions follow the 40% slump in sugar prices since early February, as tender cancellations stoked concerns that the highest prices for decades were drying up interest from end-buyers.
However, while the revisions left Goldman's forecast for short-term prices 7 cents lower at 20 cents a pound, this figure implies a recovery from levels investors are pricing in.
While the slide in prices may suggest that the sugar market had reached some resolution to its deficit, "tight fundamentals will remain an overarching concern in 2010", Goldman said.
The recent sell-off had generated "upside price risk", the bank said, forecasting that the higher sugar supplies encouraged by the high prices earlier in the year would take time to materialise.
"Prices could remain elevated through the end of 2010, when the 2010/11 Indian and Chinese crops will be harvested," the bank added.
The comments follow suggestions from a range of other analysts that the market rout may have gone too far for now, given that the large 2010 harvests expected to resolve much of the deficit were as yet not in the bag.
However, prices have remained under pressure from technical factors, such as the pattern of moving averages and the large number of long positions held by funds likely to be keen to sell many farm commodities, with the notable exception of cotton.
While cotton has been buoyed by strengthening consumer demand, at a time of weak supplies, "the market will likely be more balanced in 2010/11", Goldman said.
"An expected rebound in US and Chinese production... should offset an anticipated further improvement in demand."
The bank left its short, medium and long-term forecasts for New York prices at 70 cents a pound.