Morgan Stanley sounded a mixed note for agricultural commodity values, even as data showed many hedge funds giving up on price gains for now, slashing long exposure to corn and cotton futures on particular.
The bank said that it was "bullish" on agricultural commodities, in particular corn, saying it "still" saw the need for prices "to move higher, and possibly trading into the double digits" in terms of dollars per bushel to ration demand following a disappointing US harvest, the world's biggest.
"Physical US and global corn inventories remain precariously low," Morgan Stanley analysts said.
"Corn prices need to remain elevated to continue incentivising acreage expansion in Brazil."
Corn for December stood at $7.40 ¾ a bushel in breakfast-time deals in Chicago on Monday, a gain of 0.2%.
'Asymmetric upside risk'
The bank also rated wheat among its most bullish bets in the commodities sector, saying that the prospect of a switch from corn to wheat in livestock feed, following a poor wheat harvest in the former Soviet Union, "will likely cause US and global wheat stocks fall to near or below average levels".
Furthermore, the threat of hiccups to supplies in Ukraine, where the government has placed unofficial limits on exports, and Argentina, where heavy rains and a drop in sowings have slashed import prospects to a multi-decade low, "presents asymmetric upside risk to prices next year".
Speculators' net longs in grains and oilseeds, Oct 30, (change on week)
Chicago corn: 236,382, (-46,467)
Chicago soybeans: 174,194 (+1,846)
Kansas wheat: 51,666, (+2,260)
Chicago wheat: 48,510, (-6,759)
Chicago soymeal: 49,051, (+7,112)
Chicago soyoil: -22,821, (-6,201)
Sources: Agrimoney.com, CFTC
And for soybeans too, Morgan Stanley said it was "constructive" on values, saying it saw "upside to prices on the need to ration US demand and preserve South American acreage against still-strong corn values.
The group also flagged "improving" crush margins in the US and in China fostered by demand for soymeal, although for China, a revival would follow a collapse to levels some $500 a tonne in the red, among their lowest since at least 2008.
'Carrying too much length'
However, Morgan Stanley was cautious over timings of price gains, saying it did not believe "that there will be catalysts in the coming month as the US harvest winds down and South American planting is ongoing".
The mood tallied with data showing a resumption of a trend of hedge funds cutting net long exposure to agricultural commodities which has marked for most of the last two months.
Speculators' net longs in New York softs, Oct 30, (change on week)
Raw sugar: 32,981, (-12,985)
Cocoa: 27,842, (-1,101)
Cotton: 9,751, (-11,915)
Coffee: -17,860, (-1,800)
Sources: Agrimoney.com, CFTC
In corn, managed money, a proxy for speculators, cut its net long exposure to Chicago futures and options by 46,000 contracts to a three-month low, data released late on Friday by the US regulator, the Commodity Futures Trading Commission (CFTC), said.
For Chicago wheat, net long exposure was cut too, while in soyoil, speculators ramped up a net short position - meaning more bets on prices falling than rising - of 22,800 lots, the largest since June.
Indeed, while Kansas-traded wheat bucked the trend, seeing a return above 51,000 lots in managed money's net long position, "funds are probably carrying too much length" on the contract, Brian Henry at Benson Quinn Commodities said.
For New York soft commodities, speculators cut net long exposure too to cocoa, sugar and, in particular, cotton futures and options.
The drop in bullish positioning on cotton was "anticipated", Commerzbank said, noting that "after fears of sudden quality-related bottlenecks of US cotton had largely abated, the price of cotton had temporarily plummeted to a five-week low.
"Rising stocks on the Ice exchange also exerted pressure on prices. The prospect of Chinese imports falling by half this season is likewise dampening the price outlook."