Rabobank gloomy on farm commodities - except sugar

Rabobank sounded a bearish note on agricultural commodities - except sugar - cutting price forecasts for many and, for wheat upgrading expectations, but to levels below the futures curve.

The bank cut its forecast for Chicago corn futures in the newly-started October-to-December quarter by up to $0.40 a bushel, warning that the grain faced "an increasingly bearish outlook" thanks to the extra US stocks uncovered in an official report on Monday, and from promising US harvest yields.

"The positive harvest reports bolster expectations that 2013 will indeed by a strong stock-building year," Rabobank, flagging that the extra supplies had already "broken" the cash basis, down $1 a bushel over the past month, on top of the fall in futures.

"As the harvest moves into the Corn Belt over the next three weeks, cash prices are expected to continue to retreat, albeit at a slower pace as producers choose to sell rather than store."

Oilseeds downgrades

For soybeans, the bank cut its price forecasts by up to $0.75 a bushel, citing here too larger-than-expected US inventories at the close of 2012-13, and pressure on values from a US harvest which is beating expectations.

Rabobank soybean, palm oil price forecasts and (change on last)

Chicago soybean futures - Q4 2013: $12.25 a bushel, (-$0.75 a bushel)

Q1 2014: $12.50 a bushel, (-$0.25 a bushel)

Q2 2014: $12.05 a bushel, (-$0.45 a bushel)

Kuala Lumpur palm oil futures - Q4 2013: 2,250 ringgit a tonne, (unchanged)

Q1 2014: 2,350 ringgit a tonne, (-50 ringgit)

Q2 2014: 2,300 ringgit a tonne, (-100 ringgit)

While acknowledging that dryness had set back sowings in Argentina and the important Brazilian soybean-growing state of Brazil, Rabobank said that "there is still time for the weather to improve".

And, elsewhere in the oilseeds complex, the forecast for Kuala Lumpur palm oil prices was also downgraded, by up to 200 ringgit a tonne, citing the boost to supplies from the seasonal high in output, with Malaysian production up 4% year on year in August.

Furthermore, demand, including from China, looks set to be quelled by strength in world output of soybeans, the source of rival vegetable oil soyoil.

'Aggressive selling'

For wheat, the bank upgraded its forecast for Chicago futures prices by up to $0.40 a bushel but to levels of at most $6.40 a bushel, for the first quarter of 2014, still below those that the market is factoring in.

Rabobank corn, wheat price forecasts and (change on last)

Chicago corn futures - Q4 2013: $4.35 a bushel, (-$0.40 a bushel)

Q1 2014: $4.45 a bushel, (-$0.15 a bushel)

Q2 2014: $4.50 a bushel, (+$0.10 a bushel)

Chicago wheat futures - Q4 2013: $6.35 a bushel, (+$0.20 a bushel)

Q1 2014: $6.40 a bushel, (+$0.40 a bushel)

Q2 2014: $6.10 a bushel, (+$0.05 a bushel)

In part, the downbeat call reflected the growing premium of the grain over corn, which stood at a historically elevated $2.44 a bushel in early deals on Wednesday in Chicago, on a December contract basis.

"This will likely create an incentive for livestock feed rations to move away from wheat and back to corn."

However, Rabobank also took a more upbeat view than many other observers of Black Sea export potential , saying that extra production will lift the region's available volumes for shipment by 45% to 10m tonnes, provoking "aggressive selling into the global market".

The bank also flagged improvement to Australia's wheat prospects from recent rains, even as crops faced a frost threat, although it believes output will at best meet Abares' forecast of a 24.5m-tonne harvest, and could come in at 24.0m tonnes.

'Due for a downward correction'

For cotton too, the bank stood by forecasts for prices below those futures are factoring in, warning that prices "are due for a downward correction if import demand fails to gather pace".

Export sales to China, the top importer, are running 26% below year-ago levels, in the face of "attractive" prices of rival, synthetic fibres.

"If elevated futures prices prevent an improvement in import demand, cotton prices may slip much lower than our current forecast," the bank said.

It flagged too the potential too for pressure from rising hopes for US production, which it pegged at 14m bales, well above the US Department of Agriculture estimate of 13.1m bales, following "impressive" results from the early harvest.

'Weather remains a concern'

However, the bank did have some supportive words for sugar prices, for which it upgraded its forecast for values in the first half of 2014 to 18.5 cents  a pound, a touch above the futures curve, flagging the disappointing levels of sugars in Brazilian Centre South cane, as highlighted by industry group Unica on Tuesday.

Rabobank cotton, sugar price forecasts and (change on last)

New York cotton futures - Q4 2013: 18.0 cents a pound, (unchanged)

Q1 2014: 18.5 cents a pound, (+0.5 cents a pound)

Q2 2014: 18.3 cents a pound, (+0.3 cents a pound)

18.0 cents a pound, (unchanged)

New York sugar futures - Q4 2013: 84.0 cents a pound, (unchanged)

Q1 2014: 83 cents a pound, (unchanged)

Q2 2014: 82 cents a pound, (-1.0 cent a pound)

This decline, attributed by Unica to a hangover from early-season rains, will "limit the sucrose available for the production of ethanol and raw sugar", Rabobank said, warning that "weather remains a concern for the tail end of the Brazilian harvest".

"We expect raw sugar to continue trading in a narrow, albeit slightly higher, range in the medium term," it said, despite pegging the world surplus in 2013-14 at 5.4m tonnes, above recent figures from the likes of Kingsman and Czarnikow.

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