Commerzbank issued upbeat forecasts for agricultural commodity prices, despite the “uncertainty” stemming from coronavirus, sticking by above-market forecasts for corn, cotton and soybeans, and raising its outlook for wheat values.
“Market participants certainly cannot complain about being bored at the moment,” Commerzbank agriculture analyst Dr Michaela Helbing-Kuhl said.
“The coronavirus Covid-19 is keeping the world on tenterhooks, while the supposed resolution of the trade dispute between the US and China has so far proven capable only to a limited extent of restoring calm to the markets.”
Nonetheless, while acknowledging the difficulties that coronavirus is creating for forecasters, the bank said that “there is much to suggest that the supply of wheat outside China will be somewhat tighter in 2020-21”.
‘Prices should remain well supported’
It raised its forecast for quarter-average Chicago wheat prices by up to $0.30 a bushel, leaving the forecast for average values in the October-to-December period at $5.70 a bushel.
That is above the futures curve, with the December 2020 lot trading on Wednesday at $5.50 ½ a bushel.
The upgrade reflected expectations that even factoring in the potential for a record Russian crop, with sowings lower in the likes of the European Union and the US, the world wheat stocks-to-use ratio excluding China “is hardly likely to increase significantly in 2020-21.
“Wheat prices should therefore remain well supported,” Commerzbank said, also raising its 2020 forecasts for Paris futures by E10 a tonne, taking the fourth-quarter outlook to E200 a tonne, ahead of the E184.75 a tonne being priced into the December 2020 lot.
‘Steep rise in stocks’
By contrast, for corn, the bank trimmed its quarterly price outlooks by up to $0.20 a bushel, citing the prospect of a record US harvest this year, as forecast by the US Department of Agriculture at its Outlook Forum last week.
The US is poised to a see “a steep rise in ending stocks” over 2020-21, Ms Helbing-Kuhl said, noting that “because the US accounts for around a third of global production… this will have a considerable influence on the overall picture”.
Even so, the downgraded forecast of Chicago corn prices averaging $4.00 a bushel in the October-to-December period was above the $3.81 ¼ a bushel the December 2020 lot is trading at, noting the potential for some purchases of US supplies by China under the countries’ phase one trade agreement.
“Increased demand from China – the level of which will still be by no means comparable to that of soybeans, however – is likely to have a positive bearing on the US price,” Ms Helbing-Kuhl said.
Indeed, Commerzbank was optimistic on the prospects for the phase one deal showing results, saying that “to prevent the trade conflict from flaring up again, China will step up its purchases in the US, albeit perhaps not as sharply as the US hopes”.
This will help support Chicago soybean futures, at a time when the US harvest this year is seen remaining short of record highs, and the country’s own consumption will rise “because demand for soymeal for use as feed in the dynamic hog and poultry sector is high”.
“A second deficit on the global soybean market is perfectly possible… even if a lot of soybeans should still be supplied from South America,” Ms Kuhl said.
The bank stood by expectations of soybean futures averaging $9.50 a bushel in the October-to-December quarter, ahead of the $9.14 a bushel investors are factoring in to the November 2020 lot.
For cotton too, the bank stood by expectations of an average fourth-quarter price which, at 72 cents a pound, was well ahead of the futures curve, with New York’s December lot trading at 65.99 cents a pound.
Noting USDA expectations of falls in output in the likes of Brazil, India and the US in 2020-21, Ms Kuhl said that “growing demand in conjunction with falling supply will push the 2020-21 balance outside China into deficit”.
This will ensure “that cotton stocks outside China – which have been rising over the past four years – are now likely to decline slightly.
“The cotton price should profit from this,” Ms Kuhl said, although acknowledging that the “uncertainty about the spread of the Covid-19 virus has increased again in recent days”, a factor which could render USDA cotton demand forecasts optimistic.
The bank also stood by expectations for Paris rapeseed futures averaging E400 a tonne in the fourth quarter, ahead of the E383.25 a tonne being factored in to the November contract, with support set to come from prospects of another poor EU harvest.
Noting Strategie Grains forecasts that EU rapeseed output this year will come in at 18m tonnes, the second lowest since 2006, the bank flagged that the bloc’s imports of the oilseed “are therefore likely to remain high”, supporting prices.