Cotton, wheat look best bets for 2014 - early on

Next year may bring an end to the downtrend in wheat prices, which have set a series of contract lows in US markets, with cotton looking a good bet too for early 2014, Macquarie said.

The bank in outline forecasts for agricultural commodity prices next year, echoed the likes of Goldman Sachs and Rabobank in foreseeing

"In our base case, we expect the balance of risks tilting to the bearish side in the agri commodity space, continuing the trend seen in 2013," the bank said.

"A strong recovery in harvests around the world this year in the grains and oilseeds means stocks should be much more replenished in 2014 compared to a year ago."

'Expected to remain tight'

However, wheat looks among contracts best able to withstand bearish pressure, Macquarie said, rating the grain a "bullish" bet for the first half of next year.

"World wheat seaborne supplies are expected to remain tight in the first half of 2014.

"As corn drags the grains complex lower, wheat could soon become too cheap, attracting additional import demand."

Wheat has put in a poor finish to 2013, standing down more than 7% this month in Chicago, where soft red winter wheat is traded, and 9% for Kansas City hard red winter wheat, depressed by a large upgrade to the Canadian crop, and to concerns over US logistics, with ports struggling with large corn and soybean volumes.

In fact, "US origin wheat could win back Brazilian demand as it is now cheaper than Canadian wheat".

'Healthy demand'

Cotton too should start the year "constructively", supported by tight supplies of cotton in cash markets, and with dynamics in China, the top consumer, producer and importer of the fibre, remaining supportive.

"China is committed to maintaining its existing support programme for 2013-14.

"This, along with healthy demand could result in strong US exports, leading to tighter US and ex-China global stocks."

Year of two halves

However, cotton looks placed for a weak second half to next year, "as world cotton acres rise", and with the prospect of a revision to China's support policy.

For wheat too, the second half of 2014 looks likely to be more bearish for prices than the first, given the prospect of decent harvests.

Separately, Brian Henry at broker Benson Quinn Commodities noted that in the US "many key hard red winter wheat growing regions received snow fall," meaning protection from frost, a factor "which adds to the fact that few very wheat growing areas in the northern hemisphere have faced much in the way of obstacles".

Cocoa, "the only market expected to be in outright deficit", should provide hope to bulls in the second half of 2014, and sugar too.

"Sugar is already very cheap, and supply has begun responding to this," Macquarie said.

"As we enter 2014-15, the market will be more balanced and we should see a rebound [in prices] in the second half of 2014."

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