Deutsche, Evergrain stoke bearish crop price talk

Agricultural commodities' bearish bandwagon gained momentum as Deutsche Bank cut crop price forecasts while Evergrain warned of a transformation in market dynamics, echoing negative comments from the likes of Goldman Sachs and Ohio State University.

Deutsche Bank lowered expectations for corn and wheat prices this year, and made a small downgrade to expectations for soybean futures, highlighting loosened market conditions, in particular for corn.

"While demand for corn has rebounded with supply, we see price prospects today different than at any time since 2006," the bank said, citing the potential cut to the US ethanol mandate.

"With a shift from inelastic mandates to elastic demand - based on livestock economics, ethanol blending and production margins, and export competitiveness - combined with more ample global supply, we continue to see structurally lower and less volatile corn, soybean and wheat prices."

'Warning bell'

The comments came shortly after broker Evergrain warned that farmers, fresh from "what should be their best financial year", may "struggle to breakeven" in 2014-15 thanks to the worsened dynamics in agricultural commodities.

Deutsche Bank 2014 corn price forecast and (change on last)

Q1: $4.35 a bushel, (+1.2%)

Q2: $4.45 a bushel, (-1.1%)

Q3: $4.30 a bushel, (-5.5%)

Q4: $4.10 a bushel, (-7.9%)

Forecast for quarter average, Chicago front contract

The caution reflected concerns over improved production, at a time of some threats to demand from the likes of the proposal by the Environmental Protection Agency to downgrade targets for the volume of ethanol which must be blended into US gasoline.

"A combination of falling grain prices and a possible retreat on the biofuels policy in Washington should prompt a warning bell," Swiss-based Evergrain said.

'Further downside potential'

The world is "entering a period of more balanced supply and demand fundamentals after almost a decade of increasing volatility," the broker said.

Deutsche Bank 2014 wheat price forecast and (change on last)

Q1: $5.95 a bushel, (-5.6%)

Q2: $5.45 a bushel, (-9.2%)

Q3: $6.05 a bushel, (-4.0%)

Q4: $5.65 a bushel, (-8.1%)

Forecast for quarter average, Chicago front contract

"Increased planting of grains and oilseeds and a potential slowdown in crop use for biofuels mean prices for corn and soybeans have further downside potential."

Indeed, agricultural commodity prices, after falling 22% last year according to the S&P GSCI index of eight major crops, the biggest calendar year drop since 1981, "probably will extend declines in 2014 as world supplies remain ample".

Evergrain forecast a further 10-15% drop in crop prices overall.

'Likely have to see losses'

The comments represent the latest in a series of downbeat forecasts for crop prices this year, even for corn, which rallied 5% on Friday after the US Department of Agriculture stunned investors by cutting its forecast for domestic stocks this year.

Goldman Sachs, while raising its forecasts for corn prices, left them below the futures curve, and has predicted crop prices - as measured by the S&P GSCI Enhanced Commodity Index, which dropped 18.0% in the agriculture segment in 2013 dropping a further 11.0% over the next year.

On Monday, Ohio State University ag economist Matt Roberts warned a US farmers' conference to expect four or five years of "lower profitability", advising them to set aside one year's worth of land charges as reserves.

"We'll likely have to see losses" before land rolled into agriculture to exploit the higher crop prices of recent years "reverts to another use", Professor Roberts said, forecasting bankruptcies among farmers.

Malting barley 'oversupply'

Evergrain, which focuses in particular on malting barley, said that premiums of the grain over feed barley would "remain low" for now, after "excellent crop results in all major growing regions.

"The world in 2014 will be oversupplied with malting barley," the broker said.

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