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Commerz downbeat on corn, cotton, wheat prices - despite upgrades to forecasts

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Commerzbank raised its forecast for corn, cotton and wheat futures, but maintained a somewhat bearish outlook nonetheless – while proving upbeat on rapeseed futures, despite a price target downgrade.


The bank nudged higher by up to $0.10 a bushel its forecast for Chicago corn futures values, on a quarter-average basis, saying that a “tightening balance sheet… should support prices”.


This was likely “especially as a decrease in the next crop has to be expected in both Brazil [for 2017-18] and the US”, where it “doesn’t look as if corn will be planted on a considerably larger acreage” in 2018-19, and output is “likely to decline once again”.


“No matter which way one looks at it, a further deficit on the global corn market is likely in the 2018-19 season. This should help drive the price up a little.”


‘Warehouses amply stocked’


However, the bank’s forecasts for corn prices, at for example $3.80 a bushel in the October-to-December period, remained below the futures curve.


“Warehouses worldwide are amply stocked after years of surpluses, especially the high surpluses of 2013-14, 2014-15 and 2016-17.”


And for wheat too, while the bank raised its price forecasts by up to $0.20 a bushel, the expectations were also below those investors are factoring in.


A forecast for values averaging $4.80 a bushel in the last three months of 2018 compares with a price of $5.09 ¼ a bushel that investors were on Thursday factoring in to Chicago’s December contract.


‘Plentiful supplies’


“The ongoing drought in major US growing regions and recent dollar weakness are grounds for us to lift our forecast slightly for the wheat price in Chicago,” the bank said.


Nonetheless, the “supply situation on the global wheat market remains plentiful”.


For Paris wheat, the bank ditched expectations of a small rise in year-average prices in 2018, instead seeing them flat at E165 a tonne, citing the strong competition on export markets.


“The euro is unlikely to weaken against the rouble, so the competitive situation will remain tough,” with Russia to become the world’s top exporter this season, after its record harvest last year.


‘Prices to correct’


On cotton, the bank sounded a bearish note too, despite lifting its forecast for prices by up to 9 cents a pound, equivalent to 13%.


This still left the forecasts at or below the futures curve, with an estimate for New York values averaging 72 cents a pound in the last three months of this year below the 75.20 cents a pound that investors were pricing in to the December contract.


“Short-term speculative reasons rather than fundamental factors are more likely to have been what now caused the price to virtually skyrocket” in mid-January, with many funds said to be attempting a squeeze on mills with large amounts of “on-call” cotton to price against futures at the latest in July.

“After all, there can be no talk of any shortage of cotton.”

And for 2018-19, “there is no sign of any tightening, at least not in the US”, the bank said, noting a Farm Futures survey showing that farmers plan to lift by 600,000 acres to 13.2m acres cotton area this year.

“We expect prices to correct.”

‘Sowing hampered’

By contrast, for rapeseed, while Commerzbank cut its forecast for quarter-average prices by up to E30 a tonne - “amid the strong euro”, which cuts the competitiveness of eurozone exports - the estimates remained above the futures curve.

A forecast for prices averaging E380 a tonne in the last three months of 2018, for instance, compared with a price of E348.00 a tonne that Paris’s November contract was trading at.

While saying it was “too early” to make predictions on 2018-19, “it is a fact that sowing of winter rapeseed in the EU for the 2018-19 crop was hampered by unfavourable weather conditions”.

This after a 2017-18 when the world production “surplus of 0.9m tonnes that is now envisaged will not allow any inventory build involving a significant replenishment of the tight stock levels.

“Instead, the global stocks-to-use ratio will rise only marginally, remaining low at 8%. In the EU it will even remain at just 4%.”


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