Corn and wheat prices offer 'sound value' - ANZ

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.

Wasde factor

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 upgraded.

Private commentators have forecasts as high as 174.1 bushels per acre.

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 risk'

Meanwhile, wheat prices at current levels "appear to be ignoring any potential risk of supply disruptions from the Black Sea", and the ongoing Ukraine crisis.

"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.

Australian outlook

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 further south.

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.

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