Societe Generale revealed a bearish outlook on agricultural
commodities, slashing its price forecasts for contracts across the complex to
levels below the futures curve – bar coffee, seeing robusta beans as "relatively
The bank, whose outlook contrasts with broadly upbeat
expectations from many other commentators, also proved upbeat on futures in
live cattle, which will be reported later on Agrimoney.com.
SocGen, in a quarterly commodities update, made particularly
strong downgrades, among grains, to forecasts for Chicago corn futures, cutting
its forecast for quarter-average prices by up to $0.50 a bushel, to leave the
estimate for values in the January-to-March period at $3.50 a bushel.
That compares with the $3.65 ¾ a bushel at which March futures
were trading at on Thursday.
SocGen analyst Rajesh Singla said that "weather in the US
was not challenging enough to severely impact US corn production and
substantially reduce US corn inventories", and with current prices still high
enough to offer profits to producers in major growing countries.
"We expect an increase in global corn acreage at the current
forward prices for 2018, which is the main reason for the bearish pressure in
2018," Mr Singla said, seeing a rise of 0.9% in Brazilian sowings overall in
2017-18, and 5% growth in Argentine plantings.
Among soft commodities, the forecast for raw sugar figures
took a particular hit, downgraded by up to 2.3 cents a pound, to leave the
estimate for average New York prices in the first three months of next year at 14.0
cents a pound.
March 2018 futures were trading on Thursday at 14.68 cents a
Raising its estimate for the world sugar production surplus
in 2017-18 by 1.2m tonnes to 5.3m tonnes, thanks to weather help for Brazilian
and, especially, Indian output, SocGen flagged the need for weak prices to
deter more substantial inventory growth.
"Sugar prices may have to fall below the parity floor of
14.5 cents a pound and remain there to force Brazil to reduce sugar production
to rebalance the market," Mr Singla said.
However, outlooks for other major crop contracts were cut
too, with Chicago wheat price forecasts cut by up to $0.25 a bushel, to leave
the estimate for average values in the January-to-March period at $4.45 a
bushel, some $0.20 a bushel below the price of March futures.
"Forward US wheat prices are uncompetitive on the export
market," Mr Singla said, flagging a "well-supplied world market".
And while forecasting US farmers cutting the
historically-low winter wheat acres for the latest harvest even further for
2018, by 5.1% to 31.8m acres, the drop would be offset in part by growth in
sowings of spring wheat, values of which have proved relatively buoyant.
And sowings should rise further in the former Soviet Union, with
SocGen noting that "the cost of production in Russia is about $100 a tonne, or
$2.72 a bushel, thanks to sharp rouble depreciation and lower-cost labour,
fertilisers and land rentals," meaning profits for producers even at current
"Yields in the country have posted a compound annual growth
rate of 3.2% over the past 10 years, while acreage has recorded a compound
annual growth rate of 1.3%," the bank added.
For soybeans, SocGen cut its price forecasts by up to $0.50
a bushel, leaving the estimate for the average value in the first quarter of 2018
at $9.35 a bushel, compared with the $9.82 ¼ a bushel at which March futures
were trading at.
"In the very short run we are slightly bearish," given
upbeat US production prospects, "due to the increase in the penetration of
high-yielding varieties," Mr Singla said, if flagging too the potential for
support to prices from weather upsets South America, where sowings are just
Meanwhile, New York cotton will average 67.0 cents a pound
in the January-to-March period, a downgrade of 7.0 cents a pound from the
previous forecast, and a little below the 68.29 cents a pound investors were
pricing in to March futures on Thursday.
Elevated carry-over inventories from last season, "record global
production this year and potential for acreage increases in 2018-19 should put
significant downward pressure on cotton prices," Mr Singla said, adding that
values remained high enough to see sowings rise further next year.
"Current profitability should incentivise further acreage increases
However, coffee escaped a mauling, with the bank holding its
forecasts for arabica coffee prices early next year at 130 cents a pound,
although this remains a little below the futures curve, and keeping its robusta
outlook at $1,984 a tonne, a touch above investors' current expectations.
"Arabica coffee inventories in major consuming countries
remained comfortable, which should cap any significant upward pressure" on
prices, SocGen said, raising its estimate for this year's Brazilian arabica
crop by 1.5m bags to 39m bags, and for Colombian output by 500,000 bags to 14.2m
"Heavy rainfall during June and July did not severely impact
the crop as [Colombian] production continues to recover."
However, the forecast for Vietnamese robusta output in
2017-18 was cut by 1.7m bags "due to unfavourable weather", with the export
forecast downgraded by 2.1m bags.
"Robusta coffee inventories have declined due to a sharp decline
in the production of robusta coffee.
"Robusta coffee is relatively undervalued and should have
price support compared to arabica coffee due to the deficit in Robusta as
compared with a surplus in arabica."