Commerzbank saw some scope for gains in wheat and rapeseed prices, but was downbeat on corn and, in particular, cotton cautioning over growth in inventories held in key trading nations.
The bank nudged higher by $0.10 a bushel to $5.00 a bushel its forecast for average Chicago spot wheat prices in the October-to-December quarter, taking the projection a little above the futures curve.
The forecast reflected expectations that, while world wheat output is broadly expected to grow this year, demand will too, meaning that “stocks are expected to remain largely unchanged at the end” of 2019-20.
Viewing as “very, and probably too, ambitious” a European Commission forecast that European Union wheat exports in 2019-20 will hit 25.5m tonnes, Commerzbank saw potential for a prop to the US market from currency softness.
“Support is likely to come from the weakening US dollar over the course of the year,” the bank said, while stickling by a late-2019 forecast for Paris wheat prices of E180 a tonne, marginally below the E181.50 a tonne that the December contract was trading at on Monday.
‘Likely to remain tight’
For Paris-traded rapeseed, the bank saw potential for price gains ahead, standing by a forecast of fourth-quarter prices averaging E390 a tonne, comfortably above the E365.75 a tonne at which the November lot is being priced by investors.
It is also a price not seen since April 2017 for a Paris spot rapeseed contract.
The forecast reflected expectations of another disappointing EU harvest of the oilseed this year, after a dryness-hit sowing window in early autumn 2018.
“Even with a normalisation of yields, an increase in production is therefore hardly to be expected due to the lower acreage,” forecast down 12%.
“The rapeseed market balance is therefore likely to remain tight, which should help prices a little despite the still-quite-high availability of other oil crops.”
However, the bank stood by a forecast for Chicago corn prices in the fourth quarter of $3.90 a bushel, a little below the $3.97 ½ a bushel the December lot was trading at.
Values stand to be weighed by the prospect of an improved US harvest this year, at a time when it may face tougher competition for demand.
“Due to the better overall expected global grain harvest, demand for corn in 2019-20 is likely to grow much more slowly than in the current season, when corn was increasingly used as a substitute for otherwise poor grain crops.”
‘A different picture emerges’
And for New York-traded cotton, prices were forecast averaging 70 cents a pound in the October-to-December period, below the 75.45 cents a pound being priced in to December futures.
While saying that “at first glance” market forecasts show a tightening trend in the cotton market, this impression is shaped by China. which has reduced its previously accumulated inventories since its massive reduction in import activity a few years ago.
“Without China, a different picture emerges,” of rising inventories in trading countries whose supplies, in being readily available to the world market, are key to pricing.
“Higher global production and significantly rising inventories outside China should weigh on the cotton price in 2019-20,” the bank said, raising doubts too over a forecast from the National Cotton Council industry group that US exports of the fibre next season will hit 17.4m bales, the second highest ever.