Australia & New Zealand Bank, which three weeks ago
forecast that hedge fund liquidation in agricultural commodities "looks to have
largely run its course", firmed up its forecast, viewing grain prices as
offering "sound value".
The bank on Monday said that the prospect of improved grain supplies,
with the US corn harvest expected to set a record, and world wheat production
seen hitting the second best on record, was now "fully priced" into futures.
Grain prices were now "likely to stabilise" ANZ analyst Paul
Deane said, after a "25% sell-off in grain prices in the last quarter appears
to have already priced in a large improvement in supply.
"We view corn prices at $3.70 a bushel and Chicago heat
trading at $5.50 a bushel as representing sound value," he said, joining the likes
of ABN Amro, the University of Illinois and Macquarie, which have also
questioned the extent of further downside to prices.
Corn does face the threat of an upgrade to US Department of
Agriculture officials' estimate for the US yield, when they on August 12
release their monthly Wasde crop report.
This briefing "still poses a potential risk to prices",
assuming the USDA yield forecast, currently at 165.3 bushels per acre, is
Private commentators have forecasts as high as 174.1 bushels
However, the aftermath of the Wasde "could provide an
opportunity to position long, especially if a large revision to US corn yields
triggers further selling", Mr Deane said.
'Ignoring Black Sea
Meanwhile, wheat prices at current levels "appear to be
ignoring any potential risk of supply disruptions from the Black Sea", and the ongoing
"Wheat prices are particularly vulnerable this quarter due
to the possibility of despite between Russia and the Ukraine resulting in the
closure of ports or rail," Mr Deane said, forecasting that disruption in the
region could send prices "quickly" soaring 15-20%.
Both Russia and Ukraine are major wheat exporters, largely
to Middle Eastern and North African buyers.
In Australia itself, he also highlighted that a dearth of
rainfall in July in northern New South Wales and Queensland is "starting to
loom as an issue for crop development", contrasting with the strong start
National Australia Bank also highlighted that in the eastern
states, "low subsoil moisture and heavy frosts in the Darling Downs placing
pressure on crops and decent rain is needed in July and August".
However, with "decent autumn rainfall across many wheat
growing regions", NAB forecast the Australian wheat harvest overall falling
only some 1.0m tonnes from last year's 27.0m-tonne crop.
The official Abares crop bureau forecasts the harvest
falling 2.43m tonnes, to 24.6m tonnes.