Commerzbank turned bearish on cotton prices, despite the looming deficit in production, even as it upgraded prospects for some other soft commodities.

Commerzbank saw "no shortage that could lead to a marked rise in prices" of cotton, despite expectations of a shortfall in world production next year.

Forecast have called for a fall in global cotton production by 9-11% next year, which will push the market into deficit for the first time in six years, with demand outstripping supply by around 1m tonnes.

'Small rise'

But Commerzbank suggested that sizable global cotton stocks would be only slightly reduced by the move. 

China, historically the largest cotton importer, has ample stocks, and will keep import quotas in place next season. 

"As even the low US crop and the expectation of the first deficit for many years cannot provide tailwinds on a permanent basis, we do not expect this in the next few months and anticipate only a small price rise," Commerzbank said.

The bank lowered its outlook for cotton prices in the first three months of 2016 to 62 cents a pound, down from a previous forecast of 67 cents a pound.

Cotton futures for March are currently trading in New York at around 65 cents a pound. 

Commerzbank cut its forecast for 2016 average cotton prices to 63 cents a pound, from the 69 cents a pound earlier forecast. 

Coffee prices fall

Commerzbank cut its forecast for coffee prices too, despite seeing demand as set to outstrip supply for the second year in a row.

"Despite the likely second deficit in succession and prices at a very low level compared to the last six years, most short-term oriented market participants are still betting for a further fall in price," Commerzbank said.

"All in all, coffee supply is by no means plentiful," the bank said.

Arabica, robusta prospects cut

But currency effects, notably the weak Brazilian real have "weighed heavily on coffee prices", said Commerzbank.

Brazil is the world's top exporter of coffee, and the weak currency has encouraged sales, and means that growers will accept lower dollar denominated prices.

"The price of coffee has not been supported by the fact that Brazil's coffee crop declined for the third consecutive time and was only 42.15m bags in the concluded 2015-16 harvest – the lowest yield since 2009-10 and at the lower end of the range quoted as the market expectation in the months before," said Commerzbank.

Another market deficit is anticipated in 2015-16.

Commerzbank cut its forecast for arabica prices in the first three months of 2016 to 130 cents a pound. This is down 20 cents a pound from its previous forecast, and in line with arabica futures prices in New York.

The outlook for robusta in the first three months of next year was cut to $1,600 a tonne, down from the $1,750 a tonne forecast in October.

Cocoa deficit

"A considerable deficit seems likely this season," for cocoa, Commerzbank said.

The International Cocoa Organization has forecast the shortfall at 100,000 tonnes.

"Some other market observers are even more pessimistic," Commerzbank noted, noted dryness concerts in the Ivory Coast and Ghana, the world's top and second grower's respectively.

The winter months are key for cocoa crops, as the Harmattan, a dry wind from off the Sahara, can damage trees during their main season.

Ivorian threat

But although the deficit seems likely, it has "no doubt already largely been factored into high prices", said Commerzbank.

"If, however, deliveries in the Ivory Coast really fall behind last year's, news from Ghana proves disappointing and severe dry harmattan winds additionally dampen harvest prospects, prices could be driven even higher," the bank said.

Commerzbank forecast London cocoa prices in the first three months of next year to average £2,300 a tonne, up from a previous forecast of £2,150 a tonne.

March cocoa futures in London are currently trading at £2,324 a tonne.

Indian drought

The sugar market is headed for its first deficit in six years this season. A weak monsoon season in India has threatened production there, with production stagnant in Brazil.

"The prospect of deficits was probably a major contributor to the surge in prices this autumn," said Commerzbank."

"Even though prices have undergone something of a correction to the 50% gains made from mid-August to early November, we still do not envisage a retreat in the near future to anywhere close to the seven-year August low of just over 10 US cents per pound," said Commerzbank.

The bank lifted its forecast for prices in the first three months of 2016 to 14.5 cents a pound, from an earlier forecast of 14 cents a pound. This is still below the current traded level of more than 15 cents a pound.