Ag commodity prices on verge of revival, StanChart

Standard Chartered added to ideas that the rout in prices may be over, saying that values were "misaligned with fundamentals" and on the verge of a revival.

The bank acknowledged that prospects for arabica coffee prices, which set a two-year low this week, appeared soft "in the near term" given expectations that the world will return to a production surplus in 2012-13, after successive seasons of deficit.

However, for many other crops, recent selling, which many commentators have blamed on fears over economic factors such as the eurozone debt crisis and the US "fiscal cliff", has left values poised for a rebound.

"Prices are misaligned with fundamentals and will start to correct to the upside over the next quarter on resilient demand and still-tight supply in some markets," StanChart analyst Abah Ofon said.

'Demand remains robust'

The bank, restating a forecast for soybean futures averaging $15.00 a bushel in the first three months of 2013, said the decline of some 20% from a record high in September was "both premature and overdone".

While foreseeing a "tangible moderation" in soybean prices after supplies from South America's next harvest come onstream, "the physical marketing of the Latin American crop  will not gather pace until the end of the first quarter of 2013", Mr Ofon said.

"Demand for beans in the interim remains robust," with US export shipments up 40% year on year, "supported by firm crush margins".

'Firming demand'

Elsewhere in the oilseeds complex, he forecast that "firming demand" would "buoy the palm oil market to the end of the year", after a price collapse which earlier this week took Kuala Lumpur futures to a three-year low.

A revival in prices since reflected the fact that the boost to demand from lower prices, and a seasonal decline in output, "are starting to show".

And, in grains, Mr Ofon was particularly upbeat over wheat prices, which he forecast averaging $9.20 a bushel in the next quarter, supported by production setbacks now evident in Argentine and Australian harvests.

Prospects for wheat were "bullish, buoyed by poor export supply prospects from the Black Sea region and deteriorating prospects for southern hemisphere origin", he said.

'Living on the edge'

The comments come a day after US consultancy AgResource also questioned the gloom on grain prices, saying that, after a range of poor harvests, "we are living on the edge in terms of grain supply.

"The grain markets still have many bullish elements about them that we'll have a hard time rectifying down the road," AgResource president Dan Basse said.

"We see this corrective decline in the grains in particular as short term. We're still looking at wheat and corn possibly making new highs."

At the University of Illinois, agribusiness economist Darrell Good, while saying that prices "seem to be following the classic pattern" for seasons with small crops, peaking early before tailing off, questioned the extent of falls.

"Recent price declines, particularly for soybeans, seem to be a little excessive given the amount of production uncertainty," he said.

However, many commentators, including Goldman Sachs, have cut forecasts for grain and oilseed prices, flagging macroeconomic uncertainty, the prospect of strong South American harvests ahead, and weaker oil prices, an important determinant for crops used in making biofuels.

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