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ABN forecasts seasonal grain rally, but supplies remain heavy (am)

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16:10 UK, 11th Aug 2016, by Agrimoney.com

Grain prices will rally from their seasonal summer lows, but the size of global supplies will leave markets trading sideways by the end of the year, ABN Amro said.

The bank maintained its price forecasts, despite the recent sell-off, with a rally expected by the end of the summer period.

But there is “still more than enough” supply around, ABN said.

Summer sell-off

Grain markets saw a broad sell-off from their June peak leaving wheat, corn, and soybean futures in Chicago all down 20%.

“Traders evidently have little faith in a strong price recovery in the near future and there was widespread profit-taking before the start of the holiday period,” said ABN.

The June grain market rally was driven by global weather worries, including potential dryness in the US Midwest and heavy rain in Europe.

“Now that the impact of these weather events appears to have been limited, prices are starting to go down again,” ABN said.

And ABN said that “unrest” in the market caused by La Nina threats was easing, as crops are now sufficiently advanced that any impact from an event “will not be too severe”.

Wheat to rally, up to a point

ABN forecast Chicago wheat prices to hit $5.00 a bushel by the end of the year. December Chicago wheat futures are currently trading at $4.37 a bushel.

But the bank noted the continued global wheat surplus, with production forecast to once again outstrip demand this year.

“After the summer period, prices are expected to pick up again due to the seasonal effect, but will then settle into a sideways trend,” ABN said.

Ample corn stocks

Corn futures were forecast to rise to $4.15 a bushel, compared to December futures currently trading at $3.31 a bushel.

“Corn, like wheat, is amply available,” ABN said.

“As noted, previous fears that weather damage might dampen output in the upcoming season proved unfounded so that the crop forecasts have been revised up.”

ABN said that the expected output will exceed consumption so that, after a brief revival at the end of the summer period, corn prices are also expected to move sideways in the rest of 2016.

Good soybean supplies

Soybean futures were forecast for modest gains, finishing the year at $10.50 a bushel. The January contract is currently trading at $9.84 a bushel.

But soybeans are in a stronger position that other grains, as global demand remains strong.

“Soybean production is set to break all records in the coming season,” ABN said, noting that the USDA forecast for global production is up some 4% year on year, at 325m tonnes.

“This increase, however, is insufficient to meet the growing demand,” ABN said, with consumption seen at a record 328m tonnes, driven by “persistently high Chinese demand”.

U.S. corn, soy crop ratings seen declining on heat stress

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CHICAGO, July 25 (Reuters) – The U.S. Department of Agriculture will likely show decreased condition ratings for U.S. corn and soybean crops after hot temperatures stressed developing plants last week, a Reuters poll of 10 analysts showed on Monday.

USDA in its weekly crop progress and conditions report due at 3 p.m. CDT (2000 GMT) is expected to show corn ratings at 75 percent good to excellent and soybeans at 70 percent good to excellent, each down 1 percentage point from last week, according to average analyst estimates. US/CORUS/SOY

Hotter-than-normal temperatures negatively impacted corn and soybean fields, especially in the lower half of the United States, while crop conditions also tend to ease seasonally in the warmest days, the analysts said.

However, plentiful rainfall in much of the U.S. Corn Belt limited the potential for heat damage, they said.

Analysts expect the government to report 69 percent of the U.S. spring wheat crop as good to excellent, unchanged from a week earlier. US/WHE

They predicted the winter wheat harvest would advance to 86 percent complete, up from 76 percent in the previous week.

All figures below in percent:

Category Average Range Prior week
Corn condition* 75 74-76 76
Soybean condition* 70 70-71 71
Spring wheat condition* 69 68-69 69
Winter wheat harvested 86 81-89 76
*Percent good/excellent

‘Era of high ag prices quite likely over’ – OECD, UN

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The period of high ag commodity prices is “quite likely over”, sapped by a slowdown in population growth, the OECD and United Nations said – although milk powder, ethanol and soymeal values look poised to outperform.

The drop in agricultural commodity prices last year – when the sector offered negative returns of 15.6%, taking three-year losses to 34%, according to Bcom indices – highlighted a structural shift in value prospects.

“Prices for the main crops, livestock and fish products all fell in 2015, signalling that an era of high prices is quite likely over for all sub-sectors,” according to a report from the OECD and the UN’s Food and Agriculture Organization.

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Food commodity prices to remain stable over next decade – FAO/OECD

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PARIS, July 4 (Reuters) – Higher agricultural productivity and slightly larger crop areas in the coming decade will cover rises in food demand, leading to stable prices and a period of more restrained agricultural markets, the FAO and OECD said on Monday.

In their annual Agricultural Outlook report, the Food and Agriculture Organization and the Organisation for Economic Cooperation and Development said food consumption would be tempered by moderate economic growth, slower population increases and the trend for households to allocate extra income to non-food items, including in developing countries.

The 10-year projections reinforced the view that agricultural commodities are emerging from the era of intense volatility unleashed by price spikes and supply tensions in 2007-2008, as faltering global economic growth curbs demand and strong output bolsters stocks. (Full Story)

“With supply and demand growth broadly matched, real agricultural prices are projected to remain relatively flat,” the FAO and OECD said.

“The increased demand for food is projected to be satisfied through productivity gains, with modest changes in crop area and livestock herds,” the organisations said in their report.

For crops, yield increases would account for 80 percent of production growth, the remainder coming from the expansion of crop areas, notably in Brazil and Argentina, they said.

Developing countries would continue to lead consumption growth due to rising populations and higher per capita spending.

This would cut the number of undernourished people to 8 percent of the global population, or under 650 million, in 2025 from 11 percent, or nearly 800 million, now, they estimated.

Developing countries, like developed nations, would see the consumption of sugar, oils and fats increase faster than that of cereals and protein as people consume more processed food, the FAO and OECD said.

There would also continue to be a shift in demand in developing economies towards animal proteins such as meat, fish and dairy products, leading to higher prices for livestock and feed products compared with staple food grains.

Per capita consumption of fish in developing countries, excluding sub-Saharan Africa, is set to exceed that of developed countries by 2025. This would result in fish produced by aquaculture overtaking volumes of caught fish, the report said.

Agricultural exports will remain dominated by a small group of countries, with several commodities forecast to be dependent on one country for more 40 percent of export flows in 2025, such as Brazil for sugar and soybeans, the FAO and OECD said.

Reforms being introduced in China were one source of uncertainty for the market outlook, however, notably the scale and timing of the country’s planned release of part of its huge maize stocks, they said.

SocGen upbeat on prospects for soybean, hard wheat futures

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Soybean and hard wheat futures look undervalued – but not for contracts this side of 2017, Societe Generale said, forecasting that investors may have already overegged short-term price prospects.

While the bank raises its price forecasts for most major grain contracts, by up to $2.84 a bushel for soybean futures, its outlooks for the rest of 2016 remained below those that investors are factoring in.

For corn, the bank forecast Chicago futures averaging $3.94 a bushel in the last three months of this year, below the price of $4.16 ¼ a bushel being factored in on Thursday by the December contract.

“US corn farmers are well on their way to finish planting another large corn crop,” SocGen analyst Rajesh Singla said, saying that the grain “remained more profitable” for farmers than rival soybeans during the key January-April period for making sowings decisions.

The bank also raised doubts on the demand side, of US corn exports rising by 175m bushels to 1.90bn bushels in 2016-17, as forecast by the US Department of Agriculture.

“With the sharp increase in corn exports from Argentina and expectations of a recovery in production in the EU, South Africa and Asia in 2016-17, US corn exports likely will face tough competition,” Mr Singla said.

‘Market may remain tight’

However, SocGen was more upbeat on prospects for soybean prices heading into next year, despite pitching prices for the rest of 2016 below the futures curve, seeing Chicago futures average $10.59 a bushel in the last three months of this year.

November futures were on Thursday trading at $10.71 ½ a bushel.

Soybean prices will jump to average $11.09 a bushel in the first three months of 2017 – well ahead of the $10.43 a bushel being priced in by March futures.

The bank cited a tightening to soybean supplies both from demand from China, where raised income and pork prices “should continue to support higher soybean imports”, and in production terms from South America.

“Brazil and Argentina, two key soybean exporters are showing signs of peaking soybean yields.

“We believe that with slowing acreage growth and peaking soybean yields, the soybean market may remain tight in the future.”

Farmer losses

And for wheat, it also saw some prospect for price gains in early 2017 beyond those investors are already pricing in – at least for Kansas City hard red winter wheat, which it forecast averaging $5.24 a bushel in the January-to-March period.

March 2017 futures were on Thursday trading at $5.13 ½ a bushel.

SocGen cautioned of a further drop in US sowings ahead, from levels which are already historically low, given that prices are “significantly below the cost of production”.

In fact, US wheat farmers on average face a loss of $120 an acre on wheat, once fixed costs are factored in, compared with a $51-an-acre profit on soybeans, the bank said.

Key spreads

The continued drop in wheat sowings should benefit in particular prices of hard red winter wheat, the biggest class in the US harvest, which should regain parity with Chicago soft red winter wheat “by the end of year”, and renew its typical premium early in 2017.

Kansas City wheat, currently trading at a discount of nearly 4% to its Chicago peer, July basis, typically trades at a premium of about 8%, earned by its higher protein content.

SocGen also flagged that the relatively weak wheat prices had cut their premium over corn to some 15% in Chicago, compared with a long-term average of 37%.

“This may increase wheat’s competitiveness versus corn for feed usage.”

Rabobank cautious over revivals in grain, coffee, sugar prices

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Rabobank lifted price forecasts for futures in the likes of corn, soybeans, sugar and wheat, but to levels below those investors are factoring in, warning over dollar firmness, and of supply underestimates for many crops.

The bank hiked in particular its forecasts for Chicago soybean futures, by up to $1.05 a bushel, now seeing them end the year at about $9.70 a bushel, with factors such as wetness which has prompted downgrades to Argentina’s harvest, and the knock-on effect in boosting demand for US supplies.

“Demand for US soybean exports and crush has increased recently,” Rabobank said, flagging a “steep increase” in soymeal futures, which are at their highest since late 2014.

However, the bank’s price forecasts remained below those futures are trading at, and which suggest for instance that soybean values will end the year at about $10.30 a bushel.

‘Should support plantings’

Rabobank flagged, as a shorter-term depressant to values of dollar-denominated assets, the prospect of a rise in US interest rates, which would be likely to spur dollar strength.

A firmer greenback, in making dollar-denominated exports that much less affordable, tends to weigh on the prices of many commodities.

However, the bank also forecast that the US soybean crop will beat the US Department of Agriculture’s estimate of 3.80bn bushels by nearly 100m bushels, thanks to the incentive from higher prices to boost sowings.

“The soybean-corn price ratio, which moved up all the way to 2.8:1, should support soybean plantings,” Rabobank said, forecasting that US stocks will grow to 465m bushels over 2016-17 – rather than falling to 305m bushels as the USDA has predicted.

‘Excellent growing conditions’

For corn too, the bank, while nudging its price forecasts higher, and seeing value hit $4.00 a bushel early next year, was more pessimistic than investors, who are pricing in a breach of $4.00 a bushel by September.

Terming “overoptimistic” USDA estimates for US corn exports and domestic demand in 2016-17, Rabobank forecast stocks rising over the season to 2.28bn bushels, above the official forecast of 2.15bn bushels.

And the forecasts for Chicago wheat futures, showing a price of about $4.85 a bushel at the close of 2016, were also below the futures curve, which was on Wednesday pricing in $4.95 ¼ a bushel for the December contract.

“Excellent growing conditions drive increasing global supplies in 2016-17, limiting price gains across both US and European Union wheat futures,” the bank said.

It stuck with a forecast for Paris wheat futures ending 2016 at about E170 a tonne.

‘Flying start’

Among soft commodities, forecasts for raw sugar futures were raised by up to 1.0 cent a pound, with values seen at about 16.0 cents a pound in a year’s time.

However, again, the forecasts were below those being priced in by investors, with May futures trading on Wednesday at 17.16 cents a pound.

Rabobank highlighted the potential for selling pressure from the unwinding by funds of their record net long position in raw sugar futures and options, besides the “flying start” to the cane crushing season in Brazils key Centre South region, which some believe could see output of the sweetener top 36m tonnes.

That said, the bank itself forecast Centre South output of a more modest 34.6m tonnes in 2016-17, warning that “the continuation of tough credit conditions” in Brazil will prevent some mills maximising their throughput, while an uptick in cane replanting will reduce the area available for harvesting this season.

Dryness fears ‘overstated’

The bank sounded a somewhat bearish note on coffee futures too, sticking with estimates for robusta futures of $1,600 a tonne from the July-to-September quarter onwards which are well below London prices.

Investors are betting on a price of nearly $1,700 a tonne in a year’s time.

However, Rabobank disputed talk of dry weather damage to robusta crops, forecasting a “fairly good” harvest of 27m bags (plus 1m bags of arabica beans) in top producer Vietnam.

“We disagree with the wires overstating the dry weather there, as we hear of good growing conditions.”

For India too, the bank said it was “a little more optimistic than the market”, forecasting a robusta coffee crop of 3.5m bags for 2016-17, “which is only 10% below the six-year average”.

Cotton optimism

Cotton was among the few ags in which Rabobank was more upbeat than investors, sticking by expectations of New York prices standing at about 70 cents a pound in a year’s time, some 10% above the futures curve.

The bank forecast a slowdown in the pace of purchases by mills from China’s state stocks as the quality of offerings decline, prompting a “late-season uptick in Chinese imports” as alternative sources are tapped.

And the bank pegged this year’s US production at 14.4m bales, 400,000 bales below the USDA forecast, citing rain delays to plantings and the potential for a shift by farmers to sowing soybeans.

Corn rebounds but lingers near one-month low ahead of USDA report

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  • Corn rebounds but USDA forecast caps gains
  • Wheat, soybeans also rise
  • USDA to issue 2016/17 supply-demand forecast

By Colin Packham

SYDNEY, May 10 (Reuters) – U.S. corn edged up on Tuesday from a near one-month low hit in the previous session, though gains were checked as traders readied for a U.S. Department of Agriculture report due later in the day that is expected to show stocks at a 29-year high.

Wheat also rose, rebounding from losses of nearly 1.6 percent, while soybeans gained as well.

The most active corn futures on the Chicago Board of Trade Cv1 rose 0.34 percent to $3.70-1/4 a bushel after dropping 2.2 percent on Monday, when prices hit the lowest since April 13 at $3.68-1/4 a bushel.

Analysts said the market was drawing support from position squaring ahead of a widely watched USDA report coming out later in the session.

“The market is expecting a bearish USDA report and that triggered the losses on Monday, and the market is seeing some rebounding today,” said Andrew Woodhouse, grains analyst at Advance Trading Australasia.

“The only uncertainty is the South American corn supply, and that is the one to watch.”

The USDA report will include the government’s first official supply-and-demand tables for the 2016/17 marketing year.

Analysts surveyed by Reuters expect the agency to project that U.S. corn stocks will balloon above 2.2 billion bushels by the end of 2016/17, which would be the most since 1987/88.

Traders said a USDA weekly update on plantings is also providing a ceiling to gains. The USDA said corn plantings was 64 percent complete, ahead of market expectations of 62 percent complete.

The most active soybean futures Sv1 rose 0.37 percent to $10.30-1/4 a bushel, having closed down 0.8 percent on Monday.

Soybean planting progress was pegged at 23 percent complete, slightly ahead of expectations.

The most active wheat futures Wv1 rose 0.38 percent to $4.58-1/4 a bushel, having closed down 1.56 percent on Monday.

The USDA has projected world wheat stocks to reach an all-time high by the end of 2015/16, and analysts surveyed by Reuters expect stocks to swell further by the end of 2016/17

Spring wheat plantings was 77 complete, the USDA said, ahead of market expectations of 74 percent complete.

The USDA pegged the condition of the winter wheat crop at 62 percent good to excellent, matching market forecasts.

China 2016 corn output to fall 2.9 pct as stockpiling ends

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BEIJING, May 9 (Reuters) – China’s corn production in 2016 is expected to decline 2.9 percent from last year to 218 million tonnes, as farmers in the northeast are expected to switch crops, a state-backed think tank said on Monday.

China decided in March to end a corn stockpiling programme that supported domestic prices for farmers and at the same time spurred imports of cheaper substitutes like sorghum and distillers’ grains.

The China National Grain and Oils Information Center (CNGOIC) said it expected the policy change to bring output down by 6.58 million tonnes this year, with demand already weakening.

The CNGOIC said feed demand had slowed, and was expected to drop 10.4 percent to 110.4 million tonnes over the 2015-16 marketing year. Overall corn consumption was expected to reach 185.54 million tonnes over the period, leaving a surplus of 41.85 million tonnes.

Chinese corn prices had already fallen by a large amount since the beginning of the 2015-16 marketing year, making imports less attractive, CNGOIC added.

It predicted corn imports would fall by more than a half to 2.7 million tonnes over the 2015-16 marketing year, while imports of distillers’ grains would fall to 3.5 million tonnes over the same period, down nearly 60 percent from the 2014-15 marketing year.

Chinese distillers’ grains imports over the whole of 2015 hit a record 6.82 million tonnes, up 26 percent on the year, according to the country’s customs authority. Sorghum imports also jumped 85 percent on the year to a record 10.69 million tonnes.