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Rabobank sees wheat, corn futures in ‘race to the bottom’

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Rabobank slashed its outlook for feed grain prices, citing a “global feed grain glut”.

Chicago feet wheat and corn are in a “race-to-the-bottom”, thanks to heavy supplies and big harvests.

Rabobank forecast corn and wheat price well below the current forward curve.

Exceptional US harvest

Rabobank lowered its forecast for Chicago wheat prices, “record projected global feed supplies, ensuring a particularly competitive export environment”.

“Wheat prices fell significantly through late June, as exceptional US harvest prospects and heightened confidence in the US corn crop sparked a price race-to-the-bottom across feed grain cash markets,” Rabobank said.

“Both record US yields and near-record ending stocks… plus an impending EU feed-quality crop will contribute to a 2016-17 global feed grain glut,” said the bank.

“Following the northern hemisphere harvest, wheat is expected to follow the corn market more closely, as both grains compete for demand.”

Undershooting the curve

And Rabobank warned that the USDA’s latest forecast for Chinese 2016-17 wheat feeding, at 15m tonnes “is somewhat optimistic in our opinion”.

“Government intentions to auction domestic corn stocks, having also removed the price support mechanism, should result in high availability of competitively priced Chinese feed corn, which could force a further 2m to 3m tonnes of wheat onto the global balance sheet,” the bank said.

Rabobank forecast Chicago wheat prices averaging $4.00 a bushel in the July to September period, and $4.30 a bushel in the October to November period.

In comparison, September Chicago wheat futures are currently trading at $4.18 a bushel, with December Chicago wheat futures are currently trading at $4.45 a bushel.

Heavy Russian crop

Rabobank forecast European wheat production at 154m tonnes, compared to the USDA forecast of 156.5m tonnes.

But Russian production was seen at a record 65.6m tonnes, 600,000 tonnes ahead of the USDA number.

“With crops in good condition, demand for high-quality grain is likely to shift across to the Black Sea, driving Russian exports to 27.1m tonnes,” Rabobank said.

Corn in ‘very good shape’

And the size of the US corn crop is weighing on price prospects for grains as well, Rabobank said.

“Traveling through the US over the course of the last few weeks, we have seen a lot of corn planted, and most of it is in very good shape,” Rabobank said.

“US crops are currently experiencing severe heat, but forecasts still hold good rains and a cooler outlook,” Raboank said.

“We therefore still predict yields to exceed those currently forecast by the USDA.”

Stocks pile up

The size of the harvest means that US stocks are set to build, despite “very strong expected exports, potentially hitting a 30-year high of 2.3bn bushels.

Rabobank saw corn futures in Chicago averaging just $3.00 a tonne for the rest of the year.

Corn futures for September are currently trading at about $3.36 a bushel, with the December contract at $3.43 a bushel.

Rabobank bearish on soybeans, corn after supply-risk price surge

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SINGAPORE, May 30 (Reuters) – Soybean and corn traders have priced in risks from the impact of adverse weather on output in South America, and markets for the two could now face downward pressures, the chief executive of Rabobank Singapore said on Monday.

Unseasonal rains in Argentina’s key producing regions ahead of the bean harvest in March and April sparked a rally in soybeans and soymeal on worries about crop yields.

Over the same period, strong exports and dryness in Brazil turned that Latin American country – usually the world’s second largest corn exporter – into a buyer.

“Soybean prices as well as corn prices have factored in these latest developments, dryness in Brazil and flooding in Argentina,” Marcel van Doremaele, head of the bank’s Singapore operations, told Reuters.

“We are slightly bearish on a lot of these grains right now and feel that the markets are a bit overdone.”

The Rabobank group specializes in commodities with a focus on food and agriculture.

Soybeans Sv1 jumped 22 percent from April lows to $10.98 a bushel, while soymeal SMv1 gained almost 60 percent to $419.80 a short ton.

Chicago corn Cv1 rose to its highest in 10 months on strong export demand and short-covering last week.

Flooding in Argentina has cut into the country’s expected soybean output by 4 million to 8 million tonnes, even as higher-than-expected yields in dryer areas offset some of the losses.

Argentina could export up to 25 percent fewer soybeans this year than last, analysts say, after severe rains left many fields underwater, damaging oilseed quality.

The country is the world’s biggest exporter of animal feed ingredient soymeal and third-largest supplier of soybeans.

“We think that the world still has enough supply but from a situation where two months ago everybody thought it is very plentiful, we are now in a situation where a lot of these markets are balanced,” van Doremaele said.

One reason for the price surge over the last month was that the damage to Argentina’s soybean crop came amid strong demand from China.

China’s soybean imports surged 33 percent in April from a year ago, setting a monthly record, amid strong demand for soymeal and soyoil.

Funds have been actively boosting their long positions in soybeans.

“We have seen a lot of fund investments in these areas which turned their position from a net short into a net long position,” van Doremaele official said.

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.