Grain and oilseed prices are "unlikely to have reached a
high" despite setting records in corn and soybeans, Rabobank said, hiking its
forecasts for futures and warning of an "explosive situation" in soymeal.
"Grains and oilseed are expected to see higher prices in
coming months as the full impact of the most devastating [US] drought in 56
years is fully factored in," the bank said.
The comments came even as Chicago soybeans set a fresh
record high, of $17.77 ¾ a bushel, for a spot contract, while corn remained
within an ace of its all-time high of $8.16 ¾ a bushel reached on Thursday.
"Many comparisons are now being made to the devastating
drought of 1988, and current crop conditions suggest this year may indeed be
equally severe," the bank said, lifting forecasts for average quarterly futures
prices across the grains and oilseed complex.
"Our crop modelling indicates that there is considerable
downside from current official production forecasts, which reflects our bias
that prices are unlikely to have reached a high at this stage."
Separately, Benson Quinn Commodities noted that rebound in
spreads between Chicago soybean contracts in the last session "implies more
upside, with some technical traders now targeting at $20 a bushel".
'Deep pockets and
Rabobank's assessment, which sees corn prices remaining above
$7.00 a bushel into next year, included a downgrade to 131 bushels an acre in
its estimate for the US corn yield, 15 bushels per acre below the US Department
of Agriculture's current forecast.
Coupled with an estimate of a higher rate of crop abandonment,
the figure implied that the SUDA will need to cut a further 1.6bn bushels from
its corn harvest forecasts, "which will be the key bullish feature for the corn
market in coming months".
|Rabobank forecasts for corn prices and (change on last)|
Q3 2012: $8.00 a bushel, (+$1.90)
Q4 2012: $7.50 a bushel, (+$1.50)
Q1 2013: $7.00 a bushel, (+$1.10 a bushel)
Q2 2013: $6.75 a bushel, (N/A)
Price: quarter average for front month Chicago contract
The bank also flagged the support to demand from exports,
which "will likely to be supported by the deep pockets and nervous governments
of developing countries".
Meanwhile, speculators still had substantial scope to place
bets on higher corn prices, with their net long position as of July 10, at 224,820
contracts, below the average of more than 300,000 contracts in 2011, and well
below the record 458,457 reached in September 2010.
'Explosive price situation'
For soybeans, while there is still scope for rain to repair
the US crop, "there is a severe risk that US yields could fall to a nine year
low, causing production to drop below 3bn bushels", the bank said.
Such a decline "must send demand rationing signals to end
users through higher prices for at least the next six months", when the South
American harvest kicks off.
In soymeal in particular, an "explosive price situation" had
developed as soaring values – with a jump of nearly 80% in Chicago futures, it
is the best performing agricultural commodity so far in 2012 – have failed to
choke off demand.
In the US, industry data indicate that soymeal consumption
rose, year on year, in June for a third consecutive month, while outstanding export
sales of 713,000 tonnes for 2012-13 are the highest for the time of the year since
2009, when drought hurt South American supplies.
"Soymeal prices must be maintained near record-high levels
in order to continue supressing end-user margins."
Wheat vs corn
The bank raised its forecast for wheat too, foreseeing Chicago
prices remaining above $8.00 a bushel "for most of the 2012-13 marketing year",
as short corn supplies force users to turn to other grains.
US use of wheat for feeding livestock will reach 450m
bushels in 2012-13 – more than twice the level the USDA is expecting.
However, this switch will require a "significant" narrowing of
the premium of wheat to corn which, at more than $1.20 a bushel on September
contracts, has revived to "levels which discourage wheat inclusion into feed
Paris wheat will gain a prop from weak Black Sea crops, which
look set to come in at 71m tonnes, meaning Europe supplies are "set to bear a
larger share of global wheat trade".