Rabo, StanChart forecast grain, soy price revivals
By - Published 15/02/2013

Investors bearish on grain and oilseed prices received a double-barrelled caution when Standard Chartered warned that the sell-off in corn prices had been "overdone", and Rabobank forecast price rises in soybeans and wheat too.

Both banks cut their forecasts for corn and wheat futures, with Standard Chartered highlighting "lower supply risks", following an improvement in South American weather, besides the expectations of large US harvests this year which have also weighed on futures prices.

Wheat prices have set seven-month lows this week in Chicago and Paris, while corn futures on Thursday fell for a 10th successive session, matching their longest losing streak since 1965.

However, the revised price outlooks remained above levels that futures are pricing in, prompting Standard Chartered analyst Abah Ofon to talk of a "buying opportunity", particularly in corn.

'Weather remains a risk'

"Corn has been oversold," Mr Ofon said, citing the potential boost to demand from restarts at several US ethanol plants, after margins for blending the biofuel into gasoline "turned strongly positive", and the threat to supplies from lingering US drought.

"The weather remains a risk," he said.

With much price-negative news already factored into futures prices, "any new supply risks will shift prices higher.

"We remain positive on the [grains and oilseeds] complex."

'Still fundamentally bullish'

Rabobank flagged US stocks data due next month as a potential spark to a rebound in corn prices, in revealing that domestic feed use of the grain is not falling by the rate of 12% implied by current US Department of Agriculture reports.

Rabobank corn price forecasts and (change on last)

Q1 2013: $7.15 a bushel, (-$0.55)

Q2 2013: $7.50 a bushel, (+$0.25)

Q3 2013: $6.10 a bushel, (-$0.15)

Q4 2013: $5.70 a bushel, (-$0.30)

Prices: quarter average, front Chicago contract

"This will not happen," Rabobank said, estimating that US stocks of corn will end 2012-13 well below the 632m bushels that the USDA currently believes."We continue to believe that the pace of US corn use remains significantly above" USDA estimates, while world supplies will receive a dent from the rain-delayed start to planting Brazil's safrinha crop, sown on fields left bare by the soybean harvest.

With planting pace in the key safrinha corn state of Mato Grosso, at 20%, 22% behind year-ago levels, and the closure of the ideal planting window next week, the bank forecast a yield of 4.5 tonnes per hectare, 0.4 tonnes per hectare below the official Brazilian estimate.

The outlook for corn prices is "still fundamentally bullish, with US corn use likely to surprise on the upside in the second quarter of 2012-13", the bank said.

'Buying opportunity'

Rabobank also said that Chicago wheat prices "present a buying opportunity at current levels", in part thanks to an estimate that US use of that grain too, in livestock feeding, was exceeding expectations.

Rabobank soybean price forecasts and (change on last)

Q1 2013: $14.50 a bushel, (no change)

Q2 2013: $14.00 a bushel, (no change)

Q3 2013: $13.50 a bushel, (no change)

Q4 2013: $13.00 a bushel, (no change)

Prices: quarter average, front Chicago contract

However, prospects for US exports too were, at 1.05bn bushels in 2012-13, higher than being factored in by a market which is sceptical that even the USDA's estimate, 25m bushels lower, can be met.The bank raised its forecast for Brazilian imports by 1.0m tonnes to 8.0m tonnes, only just short of the 2006-07 record, and for Russian purchases by 500,000 tonnes to 2.5m tonnes both figures above USDA numbers.

And this at time when US wheat is competitively priced, with values of hard red spring wheat, with 14% protein, at a $19-a-tonne discount to comparable supplies from Germany, from which Brazil has purchased in 2012-13, and soft red winter wheat "the world's cheapest", excluding India.

'Largest price risk'

The bank maintained its forecast for soybean prices, also suggesting gains compared with current Chicago futures prices, warning that this month's sell-off "does not fully account for right US supplies and South American weather risks".

Rabobank wheat price forecasts and (change on last)

Q1 2013: $7.50 a bushel, (-$0.80)

Q2 2013: $7.80 a bushel, (-$0.15)

Q3 2013: $7.00 a bushel, (-$0.50)

Q4 2013: $6.75 a bushel, (-$0.50)

Prices: quarter average, front Chicago contract

South American soybean exports need to jump 30% year on year from January to September to meet USDA forecasts, according to Rabobank, hitting a record high of 52.3m tonnes, including more than 37m tonnes from Brazil."However, we see the logistics of moving the record large [Brazilian] harvest to port as the largest price risk in coming months.

"Already an unprecedented 6.7m tonnes of vessel are lined up to load soybeans, and the harvest in Mato Grosso is only 17% complete 9 points lower than a year ago."

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