Corn, wheat 'bullish' bets. But not coffee, sugar
Wheat futures represent a "bullish" bet, supported by tightening US supplies, with corn likely to prove strong too, but prospects looks less promising for coffee and sugar bulls, Phillip Futures said.

The broker, unveiling its ideas on agricultural commodity price prospects for the April-to-June quarter, cautioned over the threat to the US winter wheat harvest from the dryness afflicting much of the southern US Plains.

 The fall in the condition ratings on winter wheat in Kansas, the top growing state,  of which 33% is seen by US Department of Agriculture officials as in "good" or "excellent" health, "is not only steep moving in the opposite direction when compared to the same period in other crop years".

In each of the previous four years, at least, "the winter wheat crop has been experiencing improvements in crop conditions during this period of time", Phillip Futures said, highlighting that this trend was evident in other states such as Oklahoma and Texas too.

And although rains are forecast for these states early next month, "some areas of the winter wheat belt that include parts of Kansas, Oklahoma as well as Texas... could miss out on the showers".

Ukraine factor

The prospect of a drought-hit harvest comes at a time when US inventories are already tightening, with the stocks-to-use ratio falling from 33% in 2011-12 to 22.7% at the close of 22.7% on USDA figures.

And prices are also being underpinned by concerns over the Ukraine crisis, in which neither Moscow nor Western powers look likely to "give in easily" over Russia's annexation of Crimea.

"Further unrest in Ukraine would scare the wheat market as there could be a risk of disruption to wheat shipments out of the country," Phillip Futures said, rating wheat as "bullish" bet.

Indeed, the broker forecast that hedge funds, which have turned from a net short in Chicago coffee futures and options at the start of the month to a net long of more than 36,000 contracts as of last Tuesday to extend their buying.

‘Ramping up in ethanol'

The Singapore-based broker said that it was upbeat over corn too, highlighting the potential for a rise in ethanol output to replenish unusually low US inventories of the biofuel at a relatively low consumption period.

This dynamic "could eventually led to the ramping up of ethanol production as processors are likely to put further effort into processing more corn into ethanol".

And, speaking ahead of USDA data on spring plantings due later on Monday, the broker foresaw a "high likelihood" of a reduction in US corn sowings this year.

The soybean: corn price ratio of 2.45:1 in the US insurance programme, which is based on Chicago futures values in February, looks likely only to encourage plantings of the oilseed.

‘Possible downward correction'

However, the broker said that soybean prices were likely to remain "rangebound", undermined by strong South American harvests.

And prices of coffee, both of New York arabica beans and London-traded robusta varieties, are vulnerable to a "possible downward correction".

In arabica coffee, any rally is "unlikely to be significant" despite the crop setbacks from in Minas Gerais, Brazil's top producing state, and from an outbreak of roya fungus in Central America, with rising output from Colombia underpinning supplies

The $1.5bn or so "pumped into" the coffee industry in Colombia, the second-ranked arabica producing country after Brazil, to replant with rust-resistant varieties is now coming good in terms of rising harvest hopes.

‘Abundant supplies are there'

For robusta coffee, any rally will prove "unsustainable" given the huge stocks of the bean left over in Vietnam, the top producer, from a record harvest last year, but which farmers are currently proving reluctant to place on the market.

"Abundant supplies are there. One farmers decide to start selling, we are going to see massive amounts of supplies flooding the market."

On sugar, Phillip Futures made a "bearish" call, cautioning that, despite the impact of Brazil's dryness on lowering cane production, the world could still see a surplus in 2014-15.

The market remained "well supplied", the broker said.

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