Cattle, soy to end 2013 firm. But not cocoa, corn

Live cattle and soybean futures represent the best investment for agricultural commodities heading into 2013, and cocoa and corn the worst, Societe Generale said although its bovine bet jarred with some other analysis.

The bank said that, while it was still bearish on grains and oilseeds for 2013 as whole, soybeans had been "temporarily oversold, and could see relative support into January" helped by strong demand, both within the US and for exports, besides risks over South America's ongoing sowings.

"Less cooperative weather in South America has continued to delay planting, potentially reducing yields and causing some farmers to shift to lower yielding short-season seed varieties," Societe Generale analyst Jeremy Friesen said.

While forecasting that the weather would "ultimately cooperate sufficiently to enable a record harvest in early 2013, near-term risks to supply and a rebound in US export demand should prove supportive near-term" to prices.

The comments came ahead of official data on Thursday showing US export sales of 1.32m tonnes last week, the best result of 2012-13, and well above market expectations.

The figure sent January soybean futures up 0.7% to $14.83 a bushel in late morning deals in Chicago.

Cattle crush

SocGen also named live cattle among its top short term commodity bets -along with copper, lead and West Texas Intermediate crude saying that high meat prices in the US were a reflection of "resilient consumer demand in the face of tighter markets".

"The fiscal cliff may impact consumer sentiment ahead of the holidays, but winter meat demand may be more resilient, keeping live cattle markets tight," Mr Friesen said.

Indeed, "robust" demand was coming at a time when cattle being fattened on US feedlots were down 5.3% year on year, with placements of new animals tumbling 12.5%, discouraged by high feed costs.

Such data suggest lower supplies ahead of cattle for slaughter, and thereby of beef.

Cut-out breakdown

The comments come at a time when live cattle prices are already at elevated levels, with Chicago's February contract, the best-traded lot, standing at 132.00 cents a pound, within 2 cents of the record high for a nearest-but-one contract set three weeks ago.

The rise reflects strong wholesale meat prices which, at 195.78 cents a pound as of yesterday for the more expensive choice beef, were up 7.10 cents year on year.

However, futures were already factoring in prices of the cut-out remaining high, at some 206-209 cents a pound, which will require all parts of the carcass to show strong prices in the post-holiday period.

This year ribs, which typically start the year weak, showed a larger-than-average drop, of 13%, which chuck, which usually begins strongly, struggled to offset, appreciating by 2% compared with the typical 11%.

"If we have a similar performance this year, needless to say it will be quite difficult to hit the cattle prices futures are currently indicating," a report from Paragon Economics and Steiner Consulting said.

"A more balanced market is needed for expected record prices to become reality."

'Prices should drift lower'

SocGen rated corn among its worst bets in part because of the impact of lower livestock numbers, encouraged by high grain prices.

With higher gasoline supplies "likely to further weigh" on the market for ethanol, "hog slaughters and feedlot inventories at extreme highs and lows, respectively, and a mild winter forecast for much of the lower 48 states likely to maintain good feed efficiency, corn prices should drift lower", Mr Friesen said.

A negative short-term outlook on cocoa was also related to weather, which has improved in the major West African producing countries, besides the impact on demand of US and European economic worries.

"Dry weather in West Africa that is aiding the delayed harvest and drying ahead of the seasonal Harmattan winds from the Sahara," he said.

"On the other hand, demand concerns are likely to rise with US and Europe facing further fiscal headwinds into January.

"Net, March cocoa prices are likely to remain under near-term pressure."

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