Palm, coffee best bets for 2013 - grains the worst

Palm oil and coffee represent the best bets in agriculture for 2013, with corn and wheat among the worst, Rabobank said, saying that this year's decline in soft commodities shows the path that grains will take.

The bank, opening the round of broker forecasts for price next year, said that grain and oilseed prices could enjoy a strong start to 2013, "as a supply squeeze builds pressure and prices are forced higher to ration demand.

Rates of consumption are "running too fast, given the sub-optimal crops" in both the US and South America.

"Higher prices early in the new year are important to encourage record plantings of row crops in the US during 2013," Rabobank, a major agricultural lender, said.

'Key bearish influence'

However, these high sowings will result in a "small global surplus" resulting in, for Chicago wheat, prices falling back from levels above $9 a bushel in the first quarter of 2012 to average $7.00 a bushel in the last.

Paris wheat will fall from E290 a tonne close to E200 a tonne.

World wheat inventories will be replenished by US sowings expected to reach a five-year high of 43.4m acres the grain is substituted for cotton, which has offered poor returns, in the southern Plains, "particularly in Texas".

Output in the Black Sea will rebound nearly 24m tonnes to 88m tonnes, boosted by a recovery in harvested area, assuming no repeat of the drought, the damage from which farm operator Trigon Agri highlighted on Wednesday.

"The expansion in Russian wheat production will be a key bearish influence in the grains complex, with harvested area expected to rise to 3m hectares to 25, hectares, the largest since 2009-10."

'Key bullish factor'

Corn will retreat in 2013 from a first-quarter high of nearly $8 a bushel to $6.00 a bushel by the October-to-December period, sapped by record South American harvests, with Argentina and Brazilian output pegged at a combined 97.3m tonnes, and a further rise in US seedings.

US corn area will rise 700,000 acres to a 77-year high of 97.6m acres, largely thanks to raised sowings in the northern Plains, with Midwest growers reluctant to boost further corn-on corn sowings, following successive seasons of yield disappointment.

The extra corn area will come in part at the expense of soybeans, for which US seedings will drop by 400,000 acres to 76.8m acres – one reason for Rabobank's less downbeat view on prices of the oilseed, seen falling from a first-quarter average of $14.75 a bushel to a last-quarter $13.00 a bushel.

China's "seemingly inelastic" demand for soybeans will also be a "key bullish factor" for prices, as the country's "structural shift towards increased soybean imports persists".

"We expect China's demand will remain strong, rising to nearly 30% of global soybean consumption, up from only 15% 10 years ago," Rabobank said.

Back to the future

The path for grains and soybeans of a strong start to 2013 followed by a weaker finish will echo that which many soft commodities have followed this year.

"Increased supply resulted in strong downward corrections, as coffee cotton and sugar were the worst performers of liquid agricultural commodities in 2012," the bank said.

"The softs have already moved through the cycle we expected for the grain and oilseed sectors in 2013."

'Positive outlook'

However, arabica coffee, trading at 143 cents a pound on a front-contract basis on Wednesday, will recover to average 170 cents a pound in the first quarter of 2013, and still see some upside later in the year, Rabobank said.

The forecast reflected expectations of the world market returning to a production deficit next year, an "off" season in Brazil's cycle of alternate higher and lower yielding years.

Pressure on production will be heightened by weak prices which will, in a range of countries, "reduce incentives to use inputs, and thus moderate yield potential in the short-term".

On demand, arabica will do better at holding its own against robusta, after shifts of 3m-5m bags to the rival beans in 2010 and 2011, encouraged by price differentials.

"We anticipate arabica prices will hit a bottom in 2012, with a positive outlook in 2013 based on new-season fundamentals and increased buying."

Palm squeezed

Rabobank rated Kuala Lumpur palm oil its most bullish bet on a 12-month horizon, foreseeing a return to 3,000 ringgit a tonne from a close on Wednesday of 2,394 ringgit a tonne.

Prices will rise "as stocks are drawn down from record-high levels", with the "bearish sentiment which has persisted… likely to wane as production slows seasonally in early 2013".

Demand, meanwhile, will be whetted by a small increase in Indian imports, of some 2% in 2012-13, "to meet growing food demand", while Chinese purchases "may approach record levels".

Declining availability of oilseeds in China, exacerbated by poor prospects for imports of Canada's disappointing rapeseed crop besides the well-documented hiccups to world soybean supplies, "is likely to continue to drive import demand for palm oil in 2012-13".

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