Grain and oilseed values are “to remain elevated”, Rabobank said, raising its price forecasts for corn and soybean futures to well above levels being factored in by investors, although proving less upbeat on soft commodities.
The year of the ox which began for China last month “is looking increasingly like a bull” as the country “roams the world for feed grains”, Rabobank said, noting this as one factor putting “strain on grain” balance sheet.
China’s imports of feed grains are forecast up “about 250% in 2020-21 and have scope to remain elevated for years”, the bank said noting that, even if current needs have been covered, the country “has a predilection for stockpiling”.
For US corn, Chinese demand “will push ending stocks below 1.3bn bushels”, a figure below the 1.502bn bushels that the US Department of Agriculture is currently forecasting for the close of 2020-21 – and a number not being reflected in current prices.
Rabobank nudged higher its forecasts for quarter-average corn prices by up to $0.10 a bushel, taking the estimate for the October-to-December period of this year to $5.10 a bushel – well above the $4.64 ½ a bushel at which the Chicago December futures contract was trading on Monday.
While the futures curve implies that “gradual resupplies [are] expected from Argentina, Brazil and the US… That view seems premature amid a clear lack of exporter stocks, growing demand and adverse weather.
“A better analogy for Chicago corn might be a coiled spring, with consumers walking a supply tightrope to US summer harvest.”
The bank added that a repeat of last year’s disappointing US corn yield “could list prices above $6.50 a bushel”.
‘Won’t be a remedy’
For soybeans, the forecast for quarter-average prices in the last three months of 2021 was lifted by $0.40 a bushel to $13.30 a bushel – compared with the $12.10 ¼ a bushel that the November contract was trading at.
While South American output “appears to have stabilised” with some weather improvements, that “won’t be a remedy for low US stocks”.
The setbacks Argentine and Brazilian crops have already sustained and growing domestic requirements, “particularly Brazilian crush for the biodiesel mandate, have poured even more soy demand burden on stretched US export programme commitments”.
These have already come within 500,000 tonnes of the 61.2m tonnes that the USDA expects the US to export over the full 2020-21, which has a further five months to run.
‘Likely to remain elevated’
For wheat too, Rabobank said that prices are “likely to remain elevated”, citing the prospect of high prices of corn driving buyers to switch grains where possible, “especially with the wheat-corn [price] ratio near multi-year lows”.
Its forecast for fourth-quarter Chicago spot futures averaging $6.40 a bushel was, while trimmed $0.05 a bushel from last month, above the $6.15 ¼ a bushel being priced into the December contract on Monday.
The bank acknowledged that “improvements in US and Black Sea rainfall are enough to temper concerns over reduced Russian availability for now”, and flagged too the prospect of harvest pressure ahead on prices.
However, viewing Russian export taxes as “likely to remain in place for the season ahead”, and noting some dryness concerns in Europe, such an outlook “coupled with… high corn and soybean prices, leads us to believe any sell-off in wheat will be limited”.
‘Ongoing demand strength’
For New York cotton futures, the bank raised its forecast for average fourth-quarter prices for the spot contract by 1 cent to 78 cents a pound, in line with the futures curve.
The US balance sheet will “dictate price direction” for futures later in the year, the bank also, although noting a “strong likelihood of further US stock erosion” assuming sowings end up near the 12m acres which the USDA outlined in February, at its Outlook Forum.
“Ongoing demand strength and the potential impact of La Nina on abandonment could exacerbate this tightness.”
However, for coffee and sugar, the bank forecast prices a little behind futures curves, seeing values of the sweetener average 15.0 cents a pound in the fourth quarter.
Supply tightness looked poised “to be alleviated” with an expected world production surplus of 1.5m tonne in 2021-22, helped by a “significant recovery” in Thai output and a shift by Russian growers to beet, as export taxes cut the appeal of wheat.
For arabica coffee, the forecast for fourth quarter values was held at 125 cents a pound, below the 133.05 cents a pound at which the New York December lot was priced on Monday.
The bank attributed signs of lower exports to “weaker demand” rather than lower availability, noting a rise in stocks certified for delivery against futures, and improved signals for Honduran and Peruvian supplies.
For London robusta, the bank held a forecast for average fourth-quarter prices of $1,450 per tonne, a little beneath the futures curve, saying that “good availability from Brazil and other origins should be enough to keep prices in check”.