Sell-downs in agricultural commodities have created a "buying
opportunity" in most crops, Rabobank said, warning of "critical shortages" in
corn ahead, and record-low wheat supplies in Europe.
The bank reduced some of its forecasts for crop prices, especially for Chicago
soybeans, for which expectations were slashed by up to $1 a bushel, and Kuala
Lumpur palm oil, for which projections were cut by 200 ringgit a tonne.
However, even in these crops, the bank kept its estimates above the futures
curve, implying buying ahead, viewing only cotton and sugar as unlikely to
rebound from a "bearish trend" in the agricultural commodities spurred by fund
sell-downs rather than crop fundamentals.
"Although the supply outlook has improved for some markets, markets are
falling below fundamental fair values, and a recovery is necessary," the bank said.
"Short-term price weakness is likely to leave most agri commodities
undervalued, presenting a buying opportunity."
For corn, prices will start a rebound late this year, with the current
malaise "significantly at odds with the scale of uncertainty in the global corn
balance sheet", the bank said.
Investors' confidence that demand rationing in corn was occurring fast
enough was "misplaced", given the rate of ethanol production, and cuts to
livestock and poultry numbers "insufficient to meet the requirements of a near-record tight US corn balance sheet".
"Demand rationing in the US balance sheet is not progressing fast enough
to avert critical corn shortages in late 2012-13.
"Higher corn prices are needed to pressure producer margins."
Chicago wheat prices would be underpinned by a switch by importers to US
exports, as the Black Sea's competitively-priced supplies run low following drought-hit
harvests, Rabobank said, in comments which came as Ukraine was reported by
traders to have banned shipments.
"The [US] export pace will increasingly strongly in the
October-to-December quarter as importers switch from alternate origins to North
In the European Union, the quest for wheat would drive the bloc's
stocks, as a proportion of use, to 6.1% at the close of 2012-13, down 3.4
points year on year, and the lowest since records begin in 1960.
"The EU export programme has had a seasonally-strong start, with export
licenses only 200,000 tonnes behind the 2011-12 pace despite a 6m-tonne
decrease in production."
Furthermore, the bank said that there was a significant risk of its
price forecasts proving underestimates, given the dryness which "continues to
pose a threat to winter wheat emergence" in the Black Sea and the US.
'Buying pace is
Meanwhile, soybean futures were set to rebound from "below-fair-value
levels", given resilient demand, especially from importer.
"The current buying pace is unsustainable, and we expect prices to rise
as further demand rationing is needed.
Factoring in a forecast for the US harvest of 2.86bn bushels, a little
below the US Department of Agriculture number, "soybean supplies are likely to
decline to critically low levels by the first quarter of 2013, as the current
pace of demand draws down US stocks to record-low levels".
Indeed, once the US harvest is over, and with it the pressure on prices that
this jump in supplies brings, "we expect to see further upward price
momentum as US soybean supplies are significantly drawn down".