Corn is the top bullish bet among agricultural commodities for 2018, followed by lean hogs, Rabobank said, in a briefing which cautioned over the potential for market influences from La Nina to freight.
The bank, in its annual briefing on year-ahead price forecasts, said that Chicago corn futures were in 2018-19 “likely to spend considerably more time above $4.00 a bushel” than during the previous two seasons.
The forecast reflected an expectation of world corn stocks falling below 200m tonnes in 2018-19 for the first time in five years, “allowing for some price support”, although most of the decline will be recorded in China, whose inventories are less sensitive for world prices.
The outlook sees corn sowings in the US, the top producer, easing by 500,000 acres to 89.9m acres, losing out to spring wheat, which is seen being favoured by current price dynamics.
Acres are seen falling in Argentina too, as growers switch to soybeans, although Brazilian area will rebound by 400,000 hectares from levels constrained to 17m hectares this year by dryness, including the knock-on effects on safrinha corn sowings of late soybean seedings.
Hogs vs cattle
In Chicago lean hogs, the bank forecast prices recovering from an average of 59 cents a pound in the current quarter to 78 cents a pound in the April-to-July period of next year, supported by strong demand from both the US and export markets.
“The recent strength in US domestic demand should carry into 2018, as pork remains an important traffic driver in a highly competitive retail market,” the bank said, forecasting exports too gaining 3.7% next year thanks to “high demand in the key destinations of Mexico, China and Japan”.
The upbeat forecast, which allowed for 3.8% growth in US hog production next year, contrasted with a downbeat outlook on live cattle futures, which Rabobank rated as its second most bearish bet, behind palm oil.
While forecasting a drop in US beef production growth next year to 3%, from 4% this year, the bank flagged “risks” including “any indications of a slowing economy”, dollar strength, and “uncertainty” over US trade agreements.
‘Marginal price strength’
Chicago wheat was rated among one of the more bullish bets, with the bank forecasting “marginal price strength for global futures in the 12-month period, albeit below the forward curve… as exportable world stocks erode for the first time in six years”.
The forecast assumes that a retreat in production - largely in the Black Sea as yields retreat from this year’s bumper levels – combined with rising demand will bring a deficit of 7.5m tonnes in global output, excluding China, whose supplies, in being unavailable to the world market, are seen as less important in price setting.
Still, Russian exports, forecast at a record 33m tonnes this season, could top 30m tonnes in 2018-19 too, supported by strong carryout stocks from the record, recent harvest.
‘Mildly supportive for prices’
Rabobank was more neutral on soybeans, saying that global biodiesel policy, growth in feed demand and rising world trade were “likely to be mildly supportive for prices in the 2018-19 season as global balance sheets contract”.
Indeed, there is “potential for Chicago prices to remain above $10 a bushel for longer periods of time than in the past two seasons”, although the bank highlighted that price prospects would be “capped” by stocks likely to remain “historically high”.
The forecast assumed an easing of 300,000 acres to 89.9m acres in US soybean seedings next year, but growth of 2.3m tonnes to 98.3m tonnes in Chinese imports in 2018-19.
However, elsewhere in the oilseeds complex, Rabo was downbeat on palm oil prices, which it said face “a bearish outlook through 2018 as global production rises 10% year on year, overtaking demand growth”.
The forecast - which sees Kuala Lumpur prices ending next year around 2,400 ringgit a tonne, compared with a current value of 2,644 a tonne for a benchmark contract – reflects expectations of 13% growth in Malaysian palm oil output, and 9% expansion in Indonesia as the hangover from El Nino-related dryness continues to wear off.
‘Key role in price volatility’
Indeed, La Nina, which has a history of boosting South East Asian palm oil output, could prove a broad agricultural commodity theme, the bank said, amid growing La Nina expectations.
“Should it develop further, La Nina could be a significant source of price volatility for commodities, ranging from palm oil… to row crops across the Americas, where dryness can occur in southern US states and parts of Argentina and southern Brazil”.
The bank also flagged that global trade policy would “play a key role in price volatility and commodity trade flows” next year, with the potential for further such effects as seen this year on vegetable oil markets from US tariffs on Argentina and Indonesian biodiesel.
And global freight rates “could have an increasing influence” on trade, Rabobank said, viewing that “increasing time charter rates as well as high bunker fuel costs will lead to higher freight costs in coming years.
“As a result, we are likely to see a shift in the movement of commodities worldwide, with higher freight rates eroding the competitiveness of exports which come from further afield.”
Rabobank’s soft commodities price forecasts will be reported by Agrimoney in a separate article.