Rabobank 'bearish' on ags, cuts grain price hopes

Rabobank sounded a bearish note on agricultural commodities, cutting its forecasts for grain prices by up to $1.00 a bushel, and saying that only cocoa and coffee will escape declines in the second half of the year.

A "strong production recovery is taking shape" in agricultural commodities which will set futures in most on course for declines in the second half of 2013 - or at least take them to levels below those markets are currently pricing in, the bank said.

For grains, "price highs for 2013 appear to be already set", with the boost to supply hopes from a US stocks report last month, and from crop-boosting rains, reducing the need for buyers to pay up.

"Improved precipitation has weakened drought in much of the US and the Black Sea underscoring out improved production expectations, and lower price forecasts," Rabobank analysts said, adding that the "bearish outlook" for crops had strengthened.

The comments are the latest in a series of downbeat forecasts since the US grain stocks report on March 28, and while hedge funds are sitting on their lowest exposure to rising crop prices on record.

'Increasingly bearish'

Rabobank, a major agricultural lender, made its biggest downgrade to its forecast for Chicago corn prices, which it cut by $1.00 a bushel in the current quarter, with smaller downgrades for later periods.

Rabobank corn price forecast and (change on last)

Q2 2013: $6.50 a bushel, (-$1.00 a bushel)

Q3 2013: $5.80 a bushel, (-$0.30 a bushel)

Q4 2013: $5.50 a bushel, (-$0.20 a bushel)

Q1 2014: $5.30 a bushel, (N/A)

Prices estimates for quarter average, Chicago front contract

The bank reduced by 150m bushels its forecast for US feed use of the grain in 2012-13, taking its forecast 50m bushels the US Department of Agriculture estimate, flagging the March stocks report which showed far more corn in store than had been  thought.

And it revealed an "increasingly bearish" view on new crop corn, saying that the threat to crops from rain and cold which were slowing plantings was more than offset by the benefit to soil moisture from the extra precipitation.

"The effects of delayed planting are outweighed by widespread drought alleviation," Rabobank analysts said, raising their estimate for the US yield this year by 2 bushels per acre to 157 bushels per acre, and its forecast for the harvest by 177m bushels to 13.94bn bushels.

Wheat price downgrades

However, estimates for Chicago wheat prices were cut too, despite damage this month to hard red winter wheat crops in the southern US Plains from late frosts.

Rabobank wheat price forecast and (change on last)

Q2 2013: $7.00 a bushel, (-$0.60 a bushel)

Q3 2013: $6.80 a bushel, (-$0.20 a bushel)

Q4 2013: $6.60 a bushel, (-$0.15 a bushel)

Q1 2014: $6.80 a bushel, (N/A)

Prices estimates for quarter average, Chicago front contract

"The longer-term significance of frost damage in the US is likely to be limited, with large wheat crops in the Black Sea region and India set to lift world wheat supplies in 2013-14."

The former Soviet Union wheat harvest was pegged at 89m tonnes a rebound of 25m tonnes year on year, reflecting hopes for better crops in all three of the region's main producers, Kazakhstan, Russia and Ukraine.

"Recent precipitation has improved the production outlook for Ukrainian wheat, forecast to reach 22m tonnes," a rise of 7m tonnes year on year, but in contrast to more conservative estimates from some other commentators.

UkrAgroConsult, the Kiev-based consultancy, last week reduced its forecast for the Ukraine wheat harvest by more than 800,000 tonnes to 20.2m tonnes.

'Likely to prove bearish'

For soybeans, the bank said that tight supplies in the US, and logistical hiccups in South America, would keep prices around $14 a bushel for now.

Rabobank soybean price forecast and (change on last)

Q2 2013: $14.00 a bushel, (-$0.50 a bushel)

Q3 2013: $12.75 a bushel, (unchanged)

Q4 2013: $11.75 a bushel, (-$0.50 a bushel)

Q1 2014: $12.25 a bushel, (N/A)

Prices estimates for quarter average, Chicago front contract

But prices will from the summer begin a decline below $12 a bushel, below the level futures are pricing in, thanks to the prospect of an improved US harvest and "the long tail of South American soybean exports".

Furthermore, a softer pace of purchases by China, the top soybean importer, is "likely to prove bearish for prices".

"Since November, feed demand in China has been less robust than last season, with soybean importers between October and March dropping 9% year on year to 25.6m tonnes."

This trend will be exacerbated by the bird flu outbreak, which has reduced demand for chicken, "as reflected in the 5% fall in consumer prices in the last 10 days".

Bullish hopes

Rabobank said that "only cocoa and coffee are expected to have upside [price] potential in the second half of the year", citing production risks.

Rabobank arabica and robusta coffee price forecasts

Q2 2013: 140 cents a pound, ($2,075 a tonne)

Q3 2013: 155 cents a pound, ($2,125 a tonne)

Q4 2013: 155 cents a pound, ($2,100 a tonne)

Q1 2014: 150 cents a pound, ($2,100 a tonne)

Prices estimates for quarter average, front contract

In cocoa, "the production outlook for the African mid-crops is mixed", thanks to "unfavourably dry weather at the start of the year" in countries such as Ivory Coast, the top cocoa producing country.

The bank also flagged the prospect of improving demand, despite data on Wednesday showing that the European cocoa grind had made its weakest start to a year since 2009, in the depths of the world financial crisis.

In arabica coffee, "weather risks in the coming months, as well as the reduction in Central American output," thanks to an outbreak of rust fungus, "are expected to result in fund short covering.

Strong demand for robusta coffee, as traded in London, means that "we see price risk skewed to the upside", with "downside beyond $2,000 a tonne not likely", the bank said.

Cocoa prices rise despite dip in European grind
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events