Commerzbank stood by upbeat forecast for grain futures, viewing official hopes for the US corn crop as “too high”, while seeing gains ahead forsoybean and cotton values too, despite cutting price outlooks.
The bank said it was “not surprising” that corn was trading at levels “significantly lower than it was in the years 2010-11 to 2013-14”, given that world supplies, as measured by stocks-to-use ratios, are expected to prove far higher in 2019-20.
Chicago corn futures traded above $5.00 a bushel unbroken between October 2010 and July 2013, compared with the $3.63 ¾ a bushel at which the best-traded December lot was trading at on Thursday.
“Nonetheless, we expect a slight recovery in the corn price,” Commerzbank said, standing by an expectation of futures averaging $3.90 a bushel in the October-to-December quarter.
The expectation of a price recovery came “not least because the current US Department of Agriculture estimate for the 2019-20 harvest seems… too high to us,” the bank said, terming as “controversial” and “surprisingly high” the official forecast of a 169.5-bushels-per-acre yield.
“In view of the fact that planting was very late in many places, many participants in surveys conducted by news agencies and in crop tours have expressed considerable doubts about the USDA’s high yield estimate.”
‘Boost the wheat price’
The potential for a downgrade to the USDA’s US corn harvest forecast raises prospects for support too for values of rival grain wheat, countering pressure from the prospect of a world output surplus in 2019-20.
“If corn turns out to be scarcer in the US than the USDA recently suggested, this could also boost the wheat price,” Commerzbank analyst Dr Michael Kuhl said.
“We believe that this is not unlikely and stick to our forecast of a wheat price of $5.00 per bushel in the fourth quarter of 2019 and a further moderate recovery in 2020.”
That suggests scope for a recovery in Chicago December wheat futures, which were on Thursday trading at $4.73 ½ a bushel.
‘Expected price recovery’
For soybeans too, the bank flagged scope for gains in values ahead, despite cutting its forecast for average fourth-quarter prices by $0.25 per bushel to $9.25 per bushel on worries over the dent to demand from the knock-on effects of China’s African swine fever outbreak in crimping feed demand.
“We expect the soybean price to continue to recover, but are postponing the time profile,” Ms Kuhl said, flagging expectations of a sharp drop in world soybean inventories in 2019-20, despite China’s woes.
For rival oilseed rapeseed, a forecast of prices ending the year at E390 a tonne was maintained - a touch above the futures curve, with the Paris November lot trading at E379.75 a tonne – seeing support from production setbacks as well as “the expected price recovery in soybeans”.
The bank highlighted prospects of weaker rapeseed-canola harvests in both of the top two growers, Canada and the European Union.
‘Situation is improving’
For cotton, the bank downgraded its forecast for average New York spot prices in the October-to-December period by 5 cents a pound to 65 cents a pound.
However, this remains well above the 58.62 cents a pound at which the December lot was priced on Thursday, with Commerzbank, while acknowledging some softness in Chinese market dynamics, flagging the prospect of increased US exports to Vietnam and Pakistan.
“A look at the global cotton market’s balance sheet in recent years does not really suggest” that prices have fallen to three-year lows, as they have, Ms Kuhl said.
“This is solely due to China, which is continuing to reduce its reserves.
“Outside China, on the other hand, the situation is improving more markedly.”