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SocGen renews 'bearish' call as grain prices slump
By Agrimoney.com - Published 26/09/2012

Societe Generale, citing signs of waning demand, restated "bearish" forecasts for corn and soybean futures even as prices extended declines, ending at their lowest in Chicago since early July.

However, the bank was more upbeat over coffee and sugar futures, citing the potential for support from rains interrupting harvests in Brazil.

Societe Generale, which two weeks ago countered an upbeat consensus on grain and oilseed markets by cautioning that futures prices were unduly high, cautioned that with soybean export prices continuing to move lower "this is a market very much in rationing mode.

"Even lower futures prices will be needed before demand returns in earnest," SocGen analyst Christopher Narayanan said.

"We continue to remain bearish on soybean prices until enough interest is generated by end-users."

'Bearish on corn'

And Mr Narayanan cautioned corn investors against "becoming prematurely bullish" despite some evidence of basis the gap between cash and futures prices - at US ports increasing.

Crop prices as of Wednesday's close

Paris wheat (November): E261.25 a tonne, unchanged

New York sugar (October): 19.57 cents a pound, -1.5%

Chicago wheat (December): \$8.69 a bushel, -2.0%

Chicago soybeans (November): \$15.73 a bushel, -2.3%

Chicago corn (December): \$7.24 a bushel, -2.4%

New York coffee (December): 169.45 cents a pound, -2.4%

"Futures prices will continue to be pressured by the accelerated harvest and farmer selling," he said.

"Further, any quick jump in cash prices will likely cause end-users to halt purchases and wait for prices to once again move lower."

While acknowledging "the potential for temporary spikes" in corn futures, the bank remained "bearish on corn", he said, restating a recommendation that investors take out a short position in March 2013 corn, hedged against a long position in Chicago wheat for March.

Funds vs end-users

The comments contrast with more upbeat assessments on prices from peers such as Barclays Capital and Goldman Sachs, although Rabobank on Tuesday cut its forecasts for grain prices in the first half of 2013.

Many observers take a more upbeat view of soybean demand, despite a lack of evidence to confirm rumours of a recent round of Chinese buying, given that some 75% of forecast US exports for 2012-13 have already been sold.

Indeed, resilient levels of the number of futures contracts still live, despite a sell-down by funds of long holdings, has appeared to be down to purchases by end users.

At broker Benson Quinn Commodities, Kim Rugel, noting that open interest in Chicago soybean futures was down "a measly" 10,000 contracts in the past week said that "the commercial end user is believed to be the buyer on this fund liquidation rout".

'Our prices are still too high'

Nonetheless, prices of the main Chicago crops extended losses on Wednesday, with corn hitting \$7.22 a bushel at one point, a drop of 2.9% on the day and the lowest price for a spot contract since July 3.

"The charts for the grains continue to look weak," Steve Georgy at US broker Allendale said, adding that corn was "still trying to find an area where demand will pick up".

A purchase by South Korea on Tuesday of 133,000 tonnes of South American corn, for February delivery, was "concerning for the bulls because this means our prices are still too high".

Soybeans for November dropped to \$15.65 a bushel at one point, also a decline of 2.9% and the lowest for a front contract since July 3.

Agricultural commodities were also depressed by a weak performance on external markets, prompted by fresh fears for world economic growth, stoked by a warning of deepening recession in Spain, and with a general strike in Greece.

Sugar prospects

Indeed, wheat dropped despite evidence, at Egypt's latest tender, of US supplies improving their competitiveness on world markets.

In New York, prices of raw sugar, having closed higher for four successive sessions, lost early gains, despite Societe Generale being upbeat on prospects for the sweetener.

Mr Narayanan said: "We see prices supported at current levels with upside risk more likely going forward, in light of production risks in India and, potentially, further delays in the Brazilian harvest."

Data on Tuesday from industry group Unica showed the cane harvest in Brazil's key Centre South region slowing in the first half of September thanks to mill maintenance, with many investors expecting rain to cause further setbacks.

"Forecasted rains in the coming days could once again delay the harvest," Mr Narayanan said.

'Expected seasonal bounce'

On coffee, which traded lower in New York, he flagged that price gaps between beans of different origins "have begun to tick higher", amid doubts over both the quantity and quality of the Brazilian harvest, following rains in the early harvest time.

"With rains forecasted to return, the harvest could once again be interrupted, while crop health concerns continue to offer a source of support.

"We remain neutral in the short-term before an expected seasonal bounce that could be amplified by production shortfalls in the fourth quarter and beyond."

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