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Grain prices 'unlikely' to reverse rally for now, says Commerbank


Commerzbank raised its forecasts for agricultural commodity prices, citing supply expectations which are “now even tighter” than two months ago, making “unlikely” a reversal of recent gains.


The bank said that the fresh wave of Covid-19 lockdowns, which have provoked worries over demand hits to the likes of cocoa and coffee, “have hardly affected the situation for grains and oilseeds.


“On the contrary, demand is robust, particularly for feed, and especially from China,” which was shown on Thursday to have spurred a record week for US corn export sales, of 7.44m tonnes – equivalent to more than 10% of shipments that the US Department of Agriculture expects for the whole season.


And, with “downward revisions of important harvests too… the situation on the grains and oilseeds markets, and also for cotton, is now even tighter than at the beginning of the winter.


“A return to the price levels of early December is unlikely in the near futures.”


‘High demand’

The bank handed a particular upgrade to expectations for Chicago corn futures, now seeing them average $5.10 a bushel this year on a most-active-contract basis, an upgrade of $0.80 a bushel.


Prices were now seen averaging $4.80 a bushel in the October-to-December quarter, up $0.60 a bushel from the previous forecast, and above too the $4.51 a bushel at which the December contract was priced at on Friday.


The USDA’s “forecast for US corn stocks at the end of 2020-21 has been reduced further and has absolutely nothing to do with the 33-year high initially expected last spring,” and was now set at a seven-year low, Commerzbank agriculture analyst Dr Michaela Helbing-Kuhl said.


Besides “high demand” from China, where corn prices “soared to recent levels” last month, US stocks expectations have also been undermined by a disappointing US harvest.


‘Another market deficit’

For soybeans too, Dr Helbing-Kuhl noted that “expectations for the 2020-21 balance are now for another market deficit and a drop in stocks to a seven-year low”.


Besides a jump in orders from China, which has returned to the US market following the countries’ phase one trade deal, “also domestic demand for soybeans is high in the US,” she said.


“Processed products have also experienced strong price increases and processing margins are attractive,” leading the 2020 crush to a record high.


The forecast for average 2020 soybean futures was lifted by $1.75 a bushel to $13.25 a bushel, with fourth-quarter prices seen at $13.00 a bushel – an upgrade of $2.00 a bushel, and above the $11.62 ½ a bushel that traders were on Friday pricing into the Chicago November lot.


‘Slipped into a deficit’

For wheat, meanwhile, the bank raised its forecast for average Chicago prices this year by a more modest $0.40 a bushel to $6.30 a bushel, with Paris futures now seen achieving E215 per tonne, an upgrade of E15 per tonne.


However, such a forecast remained closer to futures curves, with the fourth-quarter estimate for Paris values of E205 per tonne only marginally ahead of the E198.50 a tonne that December futures were priced at, and a Chicago estimate of $6.10 a bushel some $0.25 below the December contract price.


Commerzbank flagged that the world wheat market is expected to see a surplus in 2020-21 – although down to China and India, whose prices are less important in international market pricing, and without which the “balance has now slipped into a deficit”.


The bank noted too a mixed outlook for 2021 crops, with the European Union expected to see a rebound in output, but Russia a decline, after a dry autumn hampered crop establishment.


Cotton prospects

For cotton, the bank’s forecasts were also relatively cautious, with a forecast for fourth-quarter New York values of 75 cents a pound,, while upgraded by 3 cents a pound, below the 81.29 cents a pound at which the December futures contract was priced at.


The forecast for average 2021 prices was lifted by 4 cents a pound to 77 cents a pound.


While for cotton, too, many commentators now expected a world production deficit in 2020-21, “unlike corn, the market balance was well in surplus last year,” Dr Helbing-Kuhl said.

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