Stricken wheat futures to stay weak - but cotton price to revive
By Mike Verdin - Published 24/02/2016

Rabobank offered little consolation for wheat growers, cutting its price forecast even as futures hit a six-year low - but a downgrade to expectations for cotton prices left more hope for bulls.

The bank slashed by up to $0.35 a bushel its forecast for Chicago wheat prices, on a quarter-average basis, ditching expectations of prices returning above $5.00 a bushel for at least a year.

Rabobank, which also trimmed its forecasts for Paris wheat futures by up to E15 a tonne, cited strong harvests and bitter rivalry on export markets which are leading to "massive stockbuilding" of the grain in both the European Union and the US.

"Ferocious competition abroad is dragging global wheat prices lower, as weak currencies have provided Black Sea and Argentinian exporters with a tremendous competitive advantage."

The uncertainty of ergot contamination specifications which kept Egypt, the top wheat importer, out of the market for much of this month only enhanced the bearish pressure.

"In a global market where export countries are aggressively looking for destinations for their wheat, such a slowdown of imports pushed prices lower."

Six-year price low

As an extra weight on values, northern hemisphere winter wheat crops have "made it through winter without any unusually high winter damage, and are encouraging expectations for the 2016 harvest", the bank said.

The comments came even as wheat futures tumbled, falling below $4.50 a bushel in Chicago, the world's benchmark market, for the first time since 2010 on a spot contract basis.

In Paris, the best-traded May lot touched a contract low of E156.25 a tonne.

Rabobank forecast Chicago prices ending the year at about $4.75 a bushel, below the $4.92 a bushel that December futures closed at on Monday, with the E170-a-tonne estimate for Paris futures at the end of 2016 close to the level that investors are pricing in.

'Due an upward correction'

The bank also reduced its forecast for New York-traded cotton futures, by up to $0.02 a pound, cautioning that the talk of China selling down its huge stocks "has sent bearish sentiment through the market".

However, its forecasts remained comfortably above the futures curve, with an estimate, for example of prices of about 67 cents a pound at year-end above the 58.19 cents a pound priced in by the December contract.

"Cotton futures are oversold, and due for a small upward correction," Rabobank said, if cautioning that upward movement may not be forthcoming until after the completion of US sowings - which the bank forecast easing marginally year on year, rather than increasing as most commentators expect.

The US Department of Agriculture, for instance, in outline forecasts which will be updated later this week, has forecast a 1.1m-acre rise to 9.5m acres in domestic cotton plantings this year.

The bank also said that an "improvement in US [export] sales data, and an increase in physical transactions, suggest that weaker cotton prices have been stimulating demand", which has proven "lacklustre".

'Lacklustre export pace'

Rabobank kept expectations for futures in other crops largely unchanged – which for corn represented a somewhat bearish take, with the forecast for year-end prices kept at $3.70 a bushel, below the price that investors are pricing in.

December futures closed on Monday at $3.86 a bushel.

The bank flagged a "lacklustre US export pace, larger expected corn crops in South America, improved outputs in Europe, and a sufficient forecasted acreage and production in the US," where is estimated plantings rising by some 1m acres for 2016-17, enough to keep stocks ticking higher.

For soybeans, the estimate for prices around the end of 2016 was trimmed by $0.05 to $8.80 a bushel, in line with the $8.80 ¾ a bushel at which November futures were priced.

Although "soybean fundamentals remain bearish… futures have gained support from outside factors", notably recovery in crude oil and palm oil prices, to which the soy complex is linked through soyoil, a feedstock for biodiesel plants and rival to soy.

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