PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 11:03 UK, 14th Jul 2017, by Mike Verdin
Analysts wrong-footed by corn price dip - but not by falls in soy, wheat

Analysts appear to have been caught out among this week's grains corrections particularly by corn's retreat, with their forecasts for soybean and wheat still suggesting scope for price declines.

Analysts at major commentators such as Australia & New Zealand Bank, Societe Generale and Commerzbank raised quarter-average price forecasts for all three of the commodities over the past month, according to research by FocusEconomics.

The consensus forecast for Chicago soft red winter wheat futures saw a particularly strong upgrade, of $0.22 a bushel from the previous month, to a consensus of $4.91 a bushel for the October-to-December quarter.

'Likely to drift down'

However, this figure calculated from estimates made ahead of Wednesday's US Department of Agriculture Wasde crop report which sent futures tumbling - remained below the level that investors were pricing in even at the nadir of the post-Wasde selling.

The December contract stood at $5.39 a bushel in morning deals on Friday.

Following their "dramatic increase", on worries over drought in the northern US Plains, "prices are likely to drift down from their current level going forward," FocusEconomics said.

"However, a dip in wheat output, mainly as a result of a smaller planted area in the US and a drop in Australian wheat production following a bumper harvest last summer, will keep a floor under prices."

'Downside risk'

For soybeans too, analysts, despite nudging their forecast for the October-to-December quarter higher by $0.05 a bushel, left it, at $9.71 a bushel, below the level that investors were pricing in even during the post-Wasde collapse.

November futures on Friday stood at $9.92 a bushel.

FocusEconomics flagged that world soybean "supply is still outpacing demand", noting too "storage difficulties" in top importer China,

"Thousands of tonnes of soybeans lining the country's coast [are] waiting to be discharged, due to a shortage of warehouses," FocusEconomics said.

"These present a downside risk to the evolution of prices."

'Increase in industrial use'

However, in corn, an upgrade of $0.07 a bushel to $4.09 a bushel in the consensus price forecast for the October-to-December period contrasted with the recent retreat in futures.

Chicago's December contract stood at $3.86 a bushel on Friday, undermined by the USDA's failure in the Wasde to cut its forecast for the US corn yield this year, as investors had expected.

Still, FocusEconomics said that "looking ahead, an increase in the industrial use of the grain, especially in China and the US, should drive prices up".

'Poor outlook for profits'

Among soft commodities, by contrast, analysts trimmed price forecasts, but to levels above those investors are factoring in.

In sugar, for instance, while the consensus price estimate for the October-to-December period was cut by 1.5 cents per pound to 15.8 cents per pound, that is comfortably above the 14.1 cents a pound the market is pricing in to New York October futures.

"Prices should rise from their current depressed level, as a poor outlook for profits encourages producers to shift away from sugar towards other commodities," said FocusEconomics.

For cocoa, the forecast for fourth-quarter New York prices to average $2,058 a tonne, while down $23 month on month, was above the $1,921 priced into December futures.

'Uncertain supply outlook'

And in arabica coffee, the forecast for fourth-quarter prices, at 147 cents a pound, was above the 135.30 cents a pound the market was factoring in, although 7 cents down on the previous month's forecast.

"After the expected harvest season volatility eases, prices are expected to move higher due to the longer-term supply outlook, which is still uncertain following worldwide droughts and the possibility of shortages next season."

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