Coffee, sugar price forecasts slashed up to 31 percent as Brazil real falls

(Reuters) - Banks including Goldman Sachs and Citi have slashed their forecasts for coffee and sugar prices by as much as 31 percent in the past month as the value of Brazil's real currency slumped to its lowest in 12 years.
With sugar prices now languishing near the lowest levels in more than six years below 13 cents per lb, six banks are now forecasting an average of second-quarter prices of around 13.6 cents per lb, down about three cents from earlier forecasts, according to data collected by Reuters. Rabobank's forecast was the most bearish at 12.5 cents.
In arabica coffee, the average estimate fell to $1.52 per lb from $1.90, the data show. Citi cut its second quarter forecast by 31 percent, the most of any bank surveyed, but still held the most bullish third-quarter forecast at $1.75 per lb.
A leading cause of the downward revision has been the tumbling real in Brazil, the world's biggest producer of both commodities. It fell nearly 30 percent against the dollar between late January and March 20, when it reached a 12-year low due to the greenback's strength and also growing political uncertainty stemming from a corruption scandal at state-run oil company Petrobras.
"A rising dollar generally reduces global demand for dollar-denominated commodities, while a weakening Brazilian real significantly encourages exports, boosting global inventories," wrote Societe Generale in an April 7 report.
Several banks also pointed to abundant global sugar supplies as a source of nearby price pressure.
The weak currency attracted heavy exporter and producer selling in Brazil.
"Brazilian real weakness continues to reduce domestic sugar production costs in U.S. dollar terms, pressuring the ICE No. 11 (sugar) and prompting a downward revision in our price forecast, while supply-side risks remain at bay," wrote Rabobank in its March report.
While the benchmark coffee contract price fell 24 percent from the end of 2014 to the lowest level in more than one year in dollars, making it the second-weakest performer on the 19-market Thomson Reuters CoreCommodity Index, it only fell 9 percent in reais. What was an 18 percent fall in sugar futures to the lowest in more than six years in the U.S. currency was a mere 1 percent drop in reais.