Grains represent agriculture investors' better bet for most
of 2013, but it is soft commodities, in particular cotton and sugar, which will
end the year on the up, Macquarie said.
The bank, in a major crop report, rated corn as its "favourite
in the short-term" in agricultural commodities, forecasting a return in prices to
an average of $8.50 a bushel in the April-to-June quarter, well above the level
that futures are pricing in.
"The support of corn prices in the second half of the season
will be the recovery of the US export programme," as soybeans takeover Brazil's
Furthermore, there was "greater difficulty" in controlling
ethanol demand, with a potential for greater exports to China too, to judge by
cash market dynamics.
'Some bullish risk'
Corn's recovery would lift wheat too, which will average
$9.00 a bushel in Chicago in the second quarter, again a price well above the
futures curve, with the May contract closing on Thursday at $7.89 ¼ a bushel.
"We would, however, expect wheat to be better supported
against corn when compared to last season, as crop failures in the former Soviet
Union and the revision to norm of the Australian crop has reduced available wheat
supplies," Macquarie said.
And the bank flagged "some bullish risk" in soybeans too,
given the potential for weather setbacks which could at least delay Brazil's
harvest, and so too the long-awaited arrival of supplies on export markets.
"Due to the very tight front-end-loaded US export programme,
the world is highly reliant on a smooth transition to Brazilian export trade
flow," Macquarie said.
"The timing of [Brazil's] early harvested soy will be critical.
The forecast of heavy precipitation in the coming weeks risks delays to harvest
and thus export potential.
"Any supply potential lost from Brazil in February will have
to be sourced from the US.
However, all three crops look set to end the year on a soft
note, weakened by the onset of supplies from a strong US corn harvest.
While US drought "reduces the chance of hitting our US trend
yield assumption of 162 bushels an acre, if the US crop yields in excess of 162
bushels an acre, though, a bearish market is still highly likely".
Corn futures will tumble to average $4.50 a bushel in the
last quarter of the year, more than 20% below the level Chicago's December
contract is pricing in, while wheat will slump to average $600 a bushel, its
weakest in two and a half years.
For soybeans "a bearish tone will exist in the market
following the bulk of the Brazilian harvest in early March", but prices falls
will be more evident in the last quarter of 2012, when Chicago fuures will
average $12.50 a bushel.
'Risk that yields
Indeed, by then, many soft commodities will be looking
better bets, with raw sugar's correction set to bottom out in the second
quarter before it starts a slow recovery.
"There is always a risk that yields disappoint in India,
Thailand, or China.
And at current low prices, planting intentions for 2013-14
may also be impaired in Europe and Asia," Macquarie said estimating world consumption
growing by more than 2%, compared with levels of about 1-1.5% seen in recent
years of tight supplies.
Meanwhile, New York cotton may extend a gradual recovery to finish the year at
about 85.0 cents a pound, lifted by the drops in plantings encouraged by low
values compared with the 2011 record above 200 cents a pound.
"It is worth noting that the US market (which is the main
influence on New York cotton futures, is enjoying already a steady pace of
export sales thanks to demand from Asia.
"The US is also set to see a sharp contraction in production
later this year as farmers switch to the more lucrative soybean and corn crops,"
the bank said, forecasting a "near-20%" drop in US cotton acres.
"Production will also fall in Australia, Brazil and India –
helping world production ease by 4%.
"The market balance will shift to balance in 2013-14, and
although stocks will still be huge, the semblance of tightness may at least
push prices higher."