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Rabo cuts wheat price hopes but less gloomy on soy

Rabobank slashed its forecast for wheat prices, foreseeing the prospect for a leap in world inventories, but reduced expectations for a decline in soybean prices, and was more upbeat on cotton futures too.

The bank cut by up to $0.80 a bushel its forecast for wheat prices in Chicago's futures market, seeing them continuing to decline to the lowest level, on a quarter-average basis, in four years.

While US futures had "shown some resilience in recent weeks", helped by the impact of cold weather in hampering North American logistics and raising concerns over the health of winter wheat seedlings, price prospects were being undermined by the promising condition of crops elsewhere.

"Favourable conditions in many of the world's major wheat-growing regions, including the European Union and the Black Sea, are anticipated to result in an overall 20m-tonne, year-on-year increase in global wheat stocks," Rabobank said.

"As we get closer to the harvest of these crops, we expect global wheat prices to come under increasing pressure."

'Unfavourable planting conditions'

The forecast for a large rise in world wheat stocks contrasts with ideas unveiled by US Department of Agriculture officials last week that a fall in world wheat output, and a rise in food use, "should prevent an increase in global 2014-15 ending stocks.

Rabobank wheat price forecasts and (change on last)

Q1 2014: $5.90 a bushel, (-$0.55)

Q2 2014: $5.80 a bushel, (-$0.60)

Q3 2014: $5.70 a bushel, (-$0.70)

Q4 2014: $5.60 a bushel, (-$0.80)

Prices: quarter average, Chicago front futures contract

"Winter weather in the northern hemisphere has been mostly favourable for winter wheat outside the US," the USDA said.

"However, Russia's winter wheat planting was reduced by unfavourable planting conditions last fall."

Separately, researchers at the EU's Mars research unit on Monday flagged "moderate frost-kill events" in some parts of southern Russia and central Ukraine, but said that winterkill in Europe had been "very limited", and downplayed damage to crops from heavy rains in western areas too.

'Extremely tight stocks'

However, Rabobank upgraded its forecast for Chicago soybean prices, albeit to levels below those futures are currently suggesting.

Rabobank soybean price forecasts and (change on last)

Q1 2014: $12.75 a bushel, (+$0.25)

Q2 2014: $12.60 a bushel, (+$0.60)

Q3 2014: $12.00 a bushel, (+$0.20)

Q4 2014: $11.60 a bushel, (+$0.90)

Prices: quarter average, Chicago front futures contract

US supplies of soybeans left over from last season are "extremely tight, underpinning current price strength", the bank said, highlighting also support from "sustained purchases" of the oilseed by China, the top importing country.

While large South American harvests will undermine prices, some of Brazil's logistical hiccups "are likely to continue", constraining the country's competitiveness in export markets.

Selling by Argentine growers, who are hoarding crops as a dollar-denominated hedge against a falling peso, will "remain reserved".

While selling by growers - who have sold forward only 6.4% of their next soybean crop, compared with 14% a year ago will pick up next month, as farmers raise cash to pay for fertilizers and taxes, "the wider pattern throughout the season will continue to be one of crop retention".

Cotton outlook

For cotton too, the bank lifted price prospects, by up to 10 cents a pound, citing the USDA forecast for domestic stocks to end 2013-14 down 23% at 3.0m bales, "with the potential for further reductions".

US cotton exports are "well on track" to meet the USDA's target of 10.5m bales for this season.

Nonetheless, the bank forecast a retreat in cotton prices too later this year, noting the prospect of increases in stocks held by rival exporters Australia and Brazil over 2013-14, and expectations for a rise in US plantings for the 2014 harvest.

US sowings will rise by 1.8m acres, lifting the harvest to "nearly 16m bales".

The USDA last week, in its initial forecast for US cotton output this year, forecast a 1.1m-acre rise to 115m acres in plantings, but a 3.1m-bale rise to 16.3m bales in production.

Rabobank added that "elevated cotton prices by historical standards and low alternate summer cropping margins are expected to drive global cotton production [up] by 3% year on year".

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