The rally in soybean prices, which have retreated since topping
$15 a bushel for the first time since 2008, is not over yet, with futures set
to hit a record as further Argentine harvest downgrades feed through.
Rabobank raised to $14.75 a bushel, from $14.00 a bushel,
its forecast for average soybean prices in Chicago during the April-to-June
quarter, with upgrades too for values for the rest of 2012.
And the quarterly average figure may disguise a rise above
the record $16.63 a bushel, for a front futures contracts, set in July 2008,
given the need to ration supplies following a disappointing South American
There is "now an increased risk that the previous record high
may be reached or even surpassed given increasingly bullish fundamentals," the
bank, a major agricultural lender, said.
More Argentina downgrades
Indeed, production losses in South America, the only other major
source of soybean exports outside the US, are "now on track to be more severe
than in the 2008-09 marketing year," which triggered a sharp rebound in prices
in the second quarter of 2009 from an early-low amid the world economic crisis.
Rabobank cut its estimate for the Argentine soybean harvest,
hurt by frost last week on top of drought earlier in the season, by 2m tonnes to
43m tonnes, but said "this may still prove too high, as only 37% of the crop is
Informa Economics on Friday slashed its forecast for the crop
by 5m tonnes to 40.0m tonnes, downgrades which followed reductions earlier in the
week in estimates from Soybean and Corn Advisor, to 41.5m tonnes, and Oil
In 2009, when dryness was also behind a poor Argentine
harvest, downgrades continued well into the calendar year, with the US Department
of Agriculture cutting its own forecast for the crop by 7m tonnes between April
"While current evidence does not suggest this type of
additional downgrades yet, it is worth noting that a comparable reduction would
equal a below-40m-tonne [Argentine] harvest," Rabobank said.
Growing risk to
Soybean prices also need to be kept elevated to encourage an
increase in US soybean sowings, with at least an extra 1m acres of plantings
needed, above the 73.9m acres that American growers originally intended to
seed, according to a USDA report last month.
However, the bank acknowledged a potential risk to prices
from the large net long position that speculators hold, which would dent prices
if it were unwound, potentially for reasons unrelated to the agricultural
"The risk of a broader 'risk-off' trade causing soybean
prices to decline has increased significantly," Rabobank said.
Separately, Societe Generale highlighted as a potential
price signal any return to buying by investors in exchange traded funds, who
have been "noticeably absent" during the current rally.
"The timing of their re-entry could provide the catalyst for
any changes in market dynamics," SocGen said, while forecasting that soybean futures
will peak during the current quarter.
Rabobank's comments came in a monthly update in which the bank
trimmed its forecast for average New York raw sugar prices during the
April-to-June period, by 1 cent to 22.0 cents a pound, but raised its estimate
for Paris wheat futures by E20 to E195 a tonne.
"Production risks have escalated for the [European] 2012-13
crop. Paris wheat prices have avoided most of the losses seen in the Chicago
market as dry European weather continued to dominate trading."
The bank was also more upbeat in cocoa futures further ahead,
raising to $2,550 a tonne its estimate for average values in the October-to-December
quarter, and predicting a further rise to $2,600 in the first three months of
"Demand growth is strong relatively to current price signals
being sent to growers," and with the introduction of a fresh marketing authority
in Ivory Coast, the top producer, also "a concern".
"The Ivory Coast forward selling scheme has increased the
likelihood of supply disruptions and could result in lower quality beans in
delays in shipments."