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SocGen upbeat on soybean, hog and sugar prices

Investors are too optimistic on prospects for the US soybean harvest, Societe Generale said, as it lifted its forecast for new crop futures, forecasting "another rally" in lean hogs and gains in sugar prices too.

The bank recommended a long bet in Chicago's November soybean contract as it raised to $13.66 a bushel its estimate for front-month futures in the October-to-December quarter, foreseeing a continued to $14.11 a bushel in the April-to-June period next year.

The recommendation is something of a contrary bet, with November futures tumbling some $0.50 a  bushel from a high two weeks ago to stand at $12.19 ¾ a bushel on Thursday, undermined by a rapid pace of US plantings and benign weather which bodes well for the harvest.

Rabobank this week forecast average October-to-December soybean prices at $11.50 a bushel.

However, Societe Generale said it was foreseeing a "much tighter inventory picture than the US Department of Agriculture" for US soybean supplies.

'A bit too optimistic'

US inventories will end this season at 104m bushels, 26m bushels fewer than the USDA estimates, sapped by "resilient" demand both domestically and on export markets.

And while stocks will recover in 2014-15, the rebuild will take them to 262m bushels, well below the 330m bushels that the USDA foresees.

The SocGen estimate reflects both a lower production forecast - based off a yield of 44.7 bushels per acre, compared with the USDA's 45.2 bushels per acre – and a more generous estimate for exports.

"We believe that the USDA is a bit too optimistic on the likely size of the new US soybean crop, even when we take into account the potential positive impact of a strong El Nino," SocGen analyst Christopher Narayanan said.

"While we do expect the new corn crop to be large, we consider the current new crop [soybean] prices to be undervalued given the extremely low stock levels we expect at the end of the current marketing year."

High on the hog

The bank forecast "another rally in the works" for lean hog futures too, boosted by the dent to pork supplies from the porcine epidemic diahorrea virus (PEDv), at a time when high prices of protein in general may limit consumers' willingness to switch to other meats.

"We expect summer meat demand to remain resilient, helping to support hog prices through the summer and beyond," Mr Narayanan said.

"While heavier carcass weights will help stem the drop in pork production," continued cases of PEDv and the porcine delta coronavirus (PDcov), a similar disease, "are expected to provide support to hog prices".

The bank hiked by 38 cents a pound its forecasts for prices in the last three months of 2014 and the first quarter of next year, taking both above 120 cents a pound, well above the 93.725 cents a pound being factored in by December futures , and the 89.175 cents a pound February 2015 futures  are trading at.

'Commanding a premium'

Forecasts for live cattle futures were also raised to levels above the futures curve, although less dramatically, with SocGen seeing prices heading above 160 cents a pound early next year.

With US supplies of fattened cattle limited, and demand for beef underpinned by decent economic growth, "feedlots are expected to continue commanding a premium for these finished cattle".

And, in soft commodities, the bank stayed with forecasts for futures above those investors are factoring in, forecasting prices averaging 20.2 cents a pound in the last three months of 2014.

"Dry weather in India and Thailand, brought by El Niño conditions, often threatens the sugar crops there," Mr Narayan said, noting also the potential for setbacks in Brazil's cane belt, which suffered drought early in 2014, and is typically overly wet during El Niño periods.

By contrast, the bank remained neutral on prospects for corn, saying a strong US harvest this year should balance firm demand, but forecast a drop in Chicago wheat futures to average $5.71 in the first quarter of next year, with production prospects strong for most major producing countries.

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