Futures in soybeans, wheat and even cocoa represent a better
prospect for investors than corn for now given the prospect of the
newly-started harvest of the grain pressing on values, Societe Generale said.
The bank named corn among its top commodities for investors
to turn underweight on this month, along with live cattle, which "should weaken"
as slaughter encouraged by the US drought lowers the value of fattened animals.
For corn, Chicago's "September contract will likely come
under pressure as we closer to the September harvest, despite continued
downgrades in yield forecasts", SocGen analyst Jeremy Friesen said.
In fact, harvest has already begun many states, reaching 35%
completion in Texas and, further north, 7% in Kansas and 1% in Illinois, the
second-biggest producing state.
A crop's harvest-time tends to weigh on prices by producing
a spike in supplies, lowering competition between buyers.
Also negative for corn prices is that demand from ethanol plants
"has retreated somewhat", Mr Friesen said, with US output of the biofuel remaining
amongst its lowest levels since records started two years ago.
There is enough scope in exports, and in inventories, "to
deal with the necessary demand rationing needed in our view", meaning corn
prices "can come down without a change in the US ethanol mandate".
Many livestock producers have demanded that the US cut rules
on US ethanol use to lower pressure on corn supplies from biofuel plants, with
the Washington-based International Food Policy Research Institute on Monday
urging politicians to "halt" ethanol output "to help relieve the pressures on
both domestic and global food markets".
However, Societe Generale put wheat among its top picks, given
that "prices remain historically low versus corn while there are still wheat
specific weather issues in Europe.
"An overweight wheat position reflects a value play against
what we see as a peaking grains market," Mr Friesen said.
Soybeans were also rated overweight, given that they "remain
the tightest commodity within the grain and oilseeds sector" following a
disappointing South American harvest, preceding the US difficulties.
Meanwhile for cocoa, the prospect of deteriorating weather
in West Africa, and of violence in top producing country in Ivory Coast, "should
be enough to support the cocoa market through August".
A threat to cocoa bulls was from a strengthening dollar, which
"presents a particular risk for higher cocoa prices given a strong correlation
with broader market data such as the US dollar of late".
The price outlooks contrast with those from other commentators,
such as broker RJ O'Brien, which said that while "at the end of the day, [the]
rationing job ahead for soybeans is more daunting than corn," for now prospects
for a weak harvest of the grain were grabbing investors' attention.
"Market action suggests that trade is more concerned about a
much-lower-than-expected national corn yield than it is about how tight [soybean]
supplies in the US and South America will be resolved late winter next
year—especially if South America is on its way to a 30m-35m tonne gain in 2013
soybean production," RJ O'Brien's Richard Feltes said.
On Monday, Morgan Stanley said it was "constructive on corn
prices", given that "physical US and global corn inventories remain
The bank was "constructive" on soybean prices too, given weak production
in the Americas and firmer crush margins, which had returned positive in China
from an early summer dip into the red, and were increasingly strong in the US.
"Corn's recent outperformance leaves us less confident that
soybeans will gain adequate acreage in South America in the coming season," the