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
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
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".
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
â€˜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.
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
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
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.