Societe Generale diluted its bearishness on corn and soybean
prices to recommend long positions in at least one contract, warning that US
drought was poised to jump back up the agenda.
The bank – one of the most bearish commentators ahead of the
autumn crop price decline, and which three weeks ago forecast that corn prices would "trend lower" over 2013 - said that Chicago's July contract in
the grain, and in soybeans too, were poised for gains.
While saying the changes of a "decidedly bullish surprise"
to prices of the crops from South American weather was "quickly becoming
unlikely", given improved weather outlooks, the US drought remained a concern.
Although rains have replenished soil moisture levels in many
major growing area, including Indiana, one of the states worst affected last
year, of which none is now rated in drought, undue dryness remains a problem
Official forecasters predict the persistence of drought in
the central and southern Plains, and parts of the western Corn Belt, until at
least May, when the spring sowing window will be beginning to look mature.
'Continue to show problems'
"While we do not expect a repeat of last year's problems, during
which the entire Corn Belt was engulfed by drought, current indications
continue to show problems in the western half," SocGen analyst Christopher
Just short of 100% of Iowa, the top corn and soybean
producing state, remains in drought, along with 98% of Minnesota and 77% of
"The expected recovery in US production, while still likely
to be intact, may not be as high as initial current estimates," he said.
The US Department of Agriculture, in a preliminary estimate
on Monday, pegged this year's domestic corn harvest at a record 14.435bn
bushels, with soybean output seen at 3.34bn bushels, the second highest result.
'We like long
"The ongoing drought in the western Corn Belt should quickly
come to the forefront and raise prices of the summer contract months to reflect
continued inventory tightness," Mr Narayanan added.
"We like long positions in the [Chicago] July 2013 contracts
for both corn and soybeans."
The comments came even as soybeans extended their losing streak
to four sessions, standing, for March delivery, down 1.1% at $14.05 a bushel at
05:30 Chicago time (11:30 UK time).
The July contract was 1.2% lower at $13.84 ¾ a bushel.
For corn, the March contract was down 1.0% at $6.89 a
bushel, falling for a ninth successive trading day, and the July lot down 1.2%
at $6.78 ½ a bushel.
Bets on spreads
SocGen, nonetheless, maintained something of a contrarian
streak in forecasting some weakening in spreads between front contracts and
more distant lots, as South American supplies come onstream and ease supply
Goldman Sachs, even as it cut forecasts for grain and soybean futures following the USDA's latest Wasde crop report, said that "we
expect that the low level of US inventories will prove supportive to Chicago
corn and soybean timespreads rather than prices".
At Chicago-based broker RJ O'Brien, Richard Feltes flagged a
"strong tendency" in years of tight soybean stocks for May soybean contracts "to
gain on deferred July and November options from late February onward".
The broker advised "looking for opportunities on corrections
to bull spread soybean contracts until evidence emerges that rationing is
occurring, via either a reduced US soybean export sales pace, a slowing US crush,
stepped-up US soymeal imports, or soybean sales cancellations to China," Mr
"The magnitude of March-to-August US soybean rationing, compared
with last year, is daunting—i.e. the need to cut March-to-August US soybean US
soybean use by one-third compared with year-ago levels."