Wheat prices could hit highest since 2015, says CBA

Wheat futures may be on course to touch $6 a bushel, a level not seen since 2015, Commonwealth Bank of Australia said, seeing scope for corn and sugar price gains too, but proving less upbeat on cotton values.

The bank, in quarterly price forecasts, said that it was “targeting Chicago [soft red winter wheat futures] at $5.50-6.00 a bushel by season-end” – ie May, when the 2019-20 marketing year closes in the US.

Spot Chicago prices have not touched $6.00 a bushel since July 2019, with the Commonwealth Bank of Australia (CBA) forecasts also above levels that investors are factoring in.

The Chicago May 2020 contract closed its last session at $5.31 a bushel, with the futures curve not getting above $5.64 a bushel even out to July 2022, the most distant lot currently trading.

‘Much off-market’

CBA acknowledged that ample US wheat stocks remained “a barrier to higher prices”, noting that inventories of hard red winter wheat, the main type produced in the country, were “about 6m tonnes too much”.

However, the prospect of a decline in European Union wheat output in 2020, after a weather-hampered sowing season both in the west of the bloc, from too much rain, and the east, from too little, could accelerate the run down of US supplies.

Separately on Friday, FranceAgriMer revealed that French soft wheat sowings as of Monday were, at 80% complete, well behind an average of 99% for the time of year, if up 6 points week on week.

The crop, the EU’s biggest, was rated at 75% in good or excellent condition, down 4 points week on week, downgrading it to the weakest on data going back to 2012.

Furthermore, CBA said that while world wheat stocks were “notionally high… much of that is off-market in China”. Chinese inventories, in not being available to world buyers, tend to have less weight in price discovery on global markets.

‘Somewhat tighter supplies’

For corn, CBA said that investors should “expect $4-4.50 a bushel some time in 2020”, given upward pressure from “somewhat tighter supplies”.

The Chicago futures curve does not foresee prices hitting $4.00 a bushel until May 2021, while not expecting $4.50 a bushel at all.

However, the bank added that US inventories, currently seen ending 2019-20 at “high-ish levels” despite the wetness tests to crops that this year has presented, represented a “substantial batter to much higher prices” for now.

‘Room for modest gains’

For New York raw sugar prices, CBA also saw gains in futures as potentially in the offing, but flagged that “upside risk to price is limited” for now, as “extra sugar is still easy to find”.

Furthermore, while global output was moving into a deficit, “capacity still likely exceeds demand, with the output shortfall likely to accelerate further ahead.

While there was “room for modest gains as the season 2019 deficit manifests… prices are likely to be capped at 13.5-14 cents a pound, and rising only late in season 2019”.

In fact, the futures curve does not see 14 cents a pound being reached until October 2022.

Deal factor

However, for New York cotton, CBA forecast futures ending 2019-20, in July, at 60-65 cents a pound - below the level factored in by investors, with the July 2020 lot priced at 67.63 cents a pound.

Still, this forecast assumed no China-US trade deal, with the possibility of an accord an “upside risk” to prices, depending on how much China, a key cotton importer, as bought ahead of any agreement.

“China, with ‘only’ 10 months’ inventory, is possibly a buyer again.

“China’s imports from the US might take a discrete step higher.”