The fall in grain and oilseed prices may have gone too far,
being fuelled by fund sales rather than fundamentals, a clutch of brokers said,
viewing wheat as particularly oversold.
The improving weather conditions in South America - where some
parched areas of Brazil are receiving rain, and flooded parts of Argentina
drying out – have been seen as fuelling a decline in corn, soybean and wheat
futures to six-month lows already in 2013.
"Corn and soybean harvests in South America are looking
likely to be very robust this spring," Commerzbank said.
In the US, some analysts foresee corn sowings hitting their
highest since the 1930s, of nearly 100m acres, while winter wheat plantings
have been pegged at their highest in four years.
'Price fall exaggerated'
"Nonetheless, we believe the latest fall in prices to be
exaggerated, as the supply risks – which have not gone away – are largely being
ignored," the bank added.
Ag prices gain - for a change - as of 15:45 GMT (09:45 Chicago time)
Chicago wheat: $7.55 ¼ a bushel, (+1.1%)
Chicago corn: $6.86 ½ a bushel, (+0.9%)
Kansas wheat: $8.10 ¾ a bushel, (+0.8%)
Chicago soybeans: $13.76 a bushel, (+0.6%)
London wheat: £208.00 a tonne, (+0.3%)
Paris wheat: E251.50 a tonne, (+0.2%)
Prices for March contracts, except May lot for London wheat
"The unfavourable weather in the US, for instance, is likely
to negate part of the expansion in winter wheat acreage, while the coldest
winter for 28 years in China could hamper the development of this winter crop."
And the sentiment was echoed by Luke Mathews at Commonwealth
Bank of Australia, who said that a negative reaction to Friday's weekly US
wheat export sales data, which fell to 402,000 tonnes from 1.0m tonnes the week
before, was "unwarranted considering the Christmas disruption".
"More importantly, cumulative sales over the past four weeks
are up 107.5% year on year," Mr Mathews said.
He also noted the return to a, widening, premium of east
coast Australian wheat, which for March delivery closed on Monday in Sydney at
Aus$278.00 ($292) a tonne, over Chicago grain – a dynamic long forecast by CBA and
indeed by rival bank Australia & New Zealand Bank.
"Despite weakness last week, local markets remain buoyant
compared to those offshore. East coast wheat basis now quoted around Aus$18 a tonne
versus Chicago," Mr Mathews said.
Meanwhile, Societe Generale – which was among the more
bearish commentators running into the slide in crop prices since the autumn -
said it was "cautious over becoming too optimistic" on prospects for US corn
and soybean crops "given the lingering drought conditions in large areas of the
SocGen said the persistence of drought was "especially
troubling for the major hard red winter wheat areas", if it lasted into the "critical
heading stage of development once the crop breaks dormancy in April".
"While there is still time for improving conditions,
speculation is already beginning that abandonment of planted acreage will be
higher than normal this summer," SocGen analyst Christopher Narayanan said,
noting that 77-79% of area sown typically makes it to harvest.
"Higher than normal abandonment and/or lower yields, owing
to the drought, could bring final production numbers much lower than currency
Chicago vs Kansas
SocGen recommended a long bet in the hard red winter wheat,
the variety traded in Kansas, potentially hedged against a short position in Chicago
wheat, which if of soft red winter type.
While Kansas futures already have a premium over Chicago
ones - of some $0.57 a bushel as of early deals on Monday, above the five year
average of $0.46 a bushel - "it stands far below the spring-time high of 2011
of just above $1.77 a bushel when drought conditions in hard red winter wheat
sent the spreading soaring".
The comments came as grain and soybean prices indeed showed
signs of recovery on Monday, the start of the week which will on Friday bring
much-watched US Department of Agriculture reports on world crop supply and
demand, and domestic wheat sowings and grain inventories.
Nonetheless, they remain near six-month lows, a factor blamed
in part on withdrawals of fund money from agricultural commodities, with what
positions remain taking an increasingly bearish stance.