Societe Generale maintained a downbeat on agricultural
commodities, even while upgrading forecasts for corn, soybeans and wheat, and
voicing bullish comment on coffee and sugar prices.
The bank, which was taking a bearish outlook on crops
heading into the autumn correction, recommended commodity investors to take an "underweight"
position in agricultural, and energy, contracts in their portfolios, foreseeing
better hopes for prices of industrial and precious metals.
Values of base metals, such as copper, looked set to be
underpinned by improved hopes for the Chinese economy besides the resolution of
the US budget talks
However, the caution over farm commodities disguised upgrades
of nearly $1 a bushel to ideas for expectations for wheat prices heading into
SocGen analyst Christopher Narayanan cited the threats of
too much rain to Argentine wheat, and too little for the Australian crop and
newly-planted winter wheat in the US, as behind its upgraded forecast.
"Given this backdrop, we have raised our 2013 quarterly
Chicago wheat price forecasts," to levels in line with the futures curve,
suggesting prices, down more than $1 a bushel from a July high, have dropped
SocGen wheat price forecasts and (change on previous forecast)
Q1 2013: $8,92 a bushel, (+$0.93)
Q2 2013: $8.53 a bushel, (+$0.90)
Q3 2013: $8.15 a bushel, ($0.86)
Q4 2013: $7.95 a bushel, (n/a)
Indeed, prices will next year average, at $8.39 a bushel, some
13% more than in 2012, and set to remain a relatively good bet longer-term too given
the need to attract sowings from rival crops.
"With arable land showing signs of stabilising after a long
period of growth, competition on acreage is expected to intensify," Mr Narayanan
"Given the rapid growth in corn and soybean use in both
livestock feeding, particularly in emerging markets, and in the use of
biofuels, wheat is expected to lose its share of this global acreage.
"Therefore we continue to see wheat prices trending higher
versus a more muted corn and soybean price forecast."
Seed squeeze ahead?
However, the bank raised its estimate for corn prices too,
by $0.78 a bushel to $7.38 a bushel for the first quarter of next year, also in
line with the futures curve, and flagged a threat already to the US 2013 crop -
this time from seed availability rather than the weather which slashed the
SocGen corn price forecasts and (change on previous forecast)
Q1 2013: $7,38 a bushel, (+$0.78)
Q2 2013: $7.05 a bushel, (+$0.74)
Q3 2013: $6.74 a bushel, ($0.71)
Q4 2013: $6.57 a bushel, (n/a)
"One key risk becoming apparent to the market is seed availability
for the next US planting season, following this year's drought-induced
production losses," Mr Narayanan said."One question that remains to be answered is whether seed
companies will be able to meet farmer demand in the coming months."
"At present, comments from earnings calls of the major seed
companies have yielded generally optimistic views regarding seed availability.
However, we highlight this as a risk."
However, the bank saw greater scope for price gains in its
forecasts for soybean futures, which it also raised, warning that the sell-off
in Chicago values of some 20% from September highs had been "overdone", given
the uncertainty over the next South America crops.
SocGen soybean price forecasts and (change on previous forecast)
Q1 2013: $15,49 a bushel, (+$0.30)
Q2 2013: $14.81 a bushel, (+$0.30)
Q3 2013: $14.15 a bushel, ($0.29)
Q4 2013: $13.80 a bushel, (n/a)
Even if Argentine and Brazilian farmers do catch up from
early rain delays, continued setbacks "could force farmers to plant a shorter-season
soybean variety."These varieties typically have lower yield potentials than
full-season soybeans due to the earlier maturity times," Mr Narayanan said.
But he slashed expectations for soymeal prices, forecasting "further
correction" in values, given a stocking spree by buyers late in the 2011-12
which has heralded more downbeat demand this season.
"While the US soybean crush has begun at a strong pace, US
soybean meal export sales have been more muted to start the new marketing year."
'Risks in Asia'
Indeed, SocGen recommended a bet of balancing a short
position in Chicago soymeal against a long position in March soybeans
Its other trading recommendation in agricultural commodities
was a long position on New York's March raw sugar contract, given "risks in the
"Chinese imports remain strong under an apparent restocking
programme, while there are threats to Indian and Thai production," Mr Narayanan
said, flagging a "limited downside risk" to prices.
Longer-tem, "global consumption is expected to grow at a
faster rate than global production", he added, in comments which contrast with
a bearish view on sugar by many other commentators, given a global production
surplus forecast for 2012-13.
The bank also took a contrarian stance on coffee, which commentators
such as Macquarie have said appears set for price weakness, given early
indications point to a strong Brazilian 2013 harvest, and potentially a second successive
season of world production surplus.
However, Colombia, whose output has been undermined for some
years by disease and the implications of a replanting programme, remains "an
upside risk to prices".
And inventories of 2.5m bags certified for delivery against
New York futures, while on a rising trend, remain weak by past standards.
"Coffee prices appear to be extremely undervalued.
"The sell-off in coffee is overdone as the market does not
fully appreciate how historically low inventories are,."