Wheat futures will stay under $5 a bushel "for quite some
time", Societe Generale said, in downbeat crop price forecasts, which ruled out
a "significant rally" in coffee, and rated cotton among the few undervalued ags.
The bank - in a report which cut forecasts for the likes of cattle,
soybean and coffee prices to levels below the futures curve – said that Chicago
wheat prices would remain under pressure from a firm dollar, which would
curtail a recovery in US exports.
"US exports will still be pressured by cheaper origins,"
SocGen said, pegging US shipments in 2016-17 at 775m bushels, well below the
850m bushels that US Department of Agriculture officials have pencilled in.
While the rouble is seen recovering against the dollar,
cutting the competitiveness of Russian shipments, "the euro is expected to
continue its weakness", the bank said.
'Stay below $5 a bushel'
Furthermore, forecasting a slightly stronger US yield this
year than the USDA, SocGen estimated US inventories ending 2016-17 at 1.18bn
bushels (32.1m tonnes), which would be a 29-year high.
"We forecast US inventories to remain more than ample in the
foreseeable future, capping any significant price rallies," SocGen analyst
Chris Narayanan said.
Chicago wheat futures, the world benchmark, "should stay below
$5 a bushel for quite some time," the bank said, cutting its forecast for
prices, on a quarter-average basis, by up to $0.25 a bushel to levels well below
those investors are factoring in.
Futures in the first three months of next year, for instance,
were seen averaging $4.34 a bushel compared with the $5.19 a bushel that March
2017 were trading at on Thursday.
And, on a year-average basis, they were forecast trading
below $5 a bushel until 2019.
SocGen also made notable cuts to its forecast for New York arabica
coffee prices, seeing by up to 13 cent a pound, now seeing them average 117.2
cents a pound in the last three months of 2016.
December futures were on Thursday trading at 138.65 cents a
The price forecast came despite switching its forecast for
the world production balance to a deficit of 1.0m bags, compared with a previous
expectation of a 970,000-bag surplus.
The bank cited in part the poor performance of futures, "as the
continued slide makes a significant rally unlikely absent any severe supply
It also highlighted the revived output in Colombia, the
second-ranked arabica-producing country, following a tree replanting campaign
around the turn of the decade, although acknowledging that an imminent return
to La Nina conditions would threaten the recovery, in often bringing unduly wet
"Conversely, if El Niño were to persist into the June-August
period, dry and warm weather would be seen in Colombia, helping flowering and
providing more sunlight for the trees," Mr Narayanan said.
'No meaningful rally
The bank, noting "excessively high" US soybean inventories,
cut its estimates for Chicago futures in the oilseed too, by up to $0.30 a
bushel, and forecast prices averaging $8.26 a bushel in the first three months
March 2017 futures were trading at $9.17 ¼ a bushel.
And, while nudging higher estimates for corn futures, to
levels within range of the current futures curve for the rest of 2016, it was
cautious over prospects for a more meaningful recovery.
"Corn prices have, in our view, bottomed but no meaningful
rally is expected," Mr Naryanan said.
Cotton was among the few ag contracts SocGen saw as
undervalued – sticking by expectations of New York futures averaging 64.5 cents
a pound in the last three months of 2016, ahead of the 58.05 cents a pound that
December futures were priced at on Friday.
The bank acknowledged the threat to demand from enhanced
competition from synthetic fibres, while releases from China's swollen state
inventories could quell orders on the international market from the top consuming
However, while Chinese imports "are lower year on year,
opportunistic buying has kept Chinese imports above average", Mr Narayanan said,
adding that "questions remain regarding the quality" of the country's
"We see the recent sell-off [in futures] below 60 cents a pound