Corn and soybean futures may retreat as US harvest pace picks up, but any pullback will be short-lived, Societe Generale said, highlighting improved demand, and risks to South American output too.
The bank concurred with many other brokers that a pick-up in US corn and soybean harvesting expected this week, thanks to drier weather, poses a threat to values, as increased supplies spur farmer selling.
“If the harvest pace does indeed increase significantly, and especially above expectations, another drop in prices can be expected,” SocGen analyst Christopher Narayanan said.
Benson Quinn Commodities, the Minneapolis-based broker, said that tight crop pipelines should “fill quickly now that harvest activity has resumed in the eastern half of the Corn Belt over the past couple days and should run quickly now with few if any rain interruptions forecast”.
At Iowa-based Market 1, Mike Mawdsley said that while “it’s been a nice rally of late for soybeans, there could be some selling pressure soon as farmers decide to sell or store”.
However, SocGen – which a month ago issued a relatively upbeat note on prices, contrasting with prevailing gloom – said that the delays already seen in harvests, and strong demand signs, meant that a drop in prices would be “short-lived”.
Corn’s price slide, until this month, has on export markets left it competitive with Brazilian supplies and cheaper than Argentine exports, while within the US, the pace of feed use “appears to be respectable” as livestock producers finish animals at higher weights.
Average slaughter weights for cattle and hogs have been running well ahead of year-ago levels, with dressed weights for broilers growing since July to run some 3% higher.
And although US ethanol production, from corn, has been running behind expectations, “all told, demand appears to be stronger year on year and helping to eventually alleviate the glut of US corn that is expected in the coming weeks”, Mr Narayanan said.
For soybeans also, US “export sales continue to be strong”, even if the domestic crush proved weak last month, falling 7.5% year on year, thanks to tight supplies ahead of the harvest.
Furthermore, high hopes for the crop which will be harvested early in 2015 in Brazil, the second-ranked producer, have taken a knock from hot and dry weather which has delayed plants.
Slow sowings, while implying a late harvest, and allowing the US a longer post-harvest period when it has free rein over the world export market, also raises the threat “of having a sizeable portion of the Brazilian crop developing in the hottest time of year”.
Furthermore, the fall in soybean prices has, in reducing profitability prospects, raised the potential for a drop in Argentine sowings, SocGen said, tallying with a forecast earlier this week from Oil World of a drop of 200,000 hectares in the country’s plantings.
“While farmers there could simply store additional crop in bags, the shrinking margins could lead to lower planted acreage, and add more support to the US soybean programme,” Mr Narayanan said.
‘One last leg down’
SocGen forecast “one last leg down in prices” as US harvest pace recovers.
“However, given the demand dynamics that are expected to continue, we see the ‘harvest lows’ in prices coming near and fully expect prices to rise into year-end and beyond.”
Many other commentators have forecast that futures may yet set fresh multi-year lows as more harvest supplies come onstream, with Iowa-based US Commodities stating “downside objectives” for corn of $2.90-3.10 a bushel.
Chicago corn futures have not hit $2.90 a bushel since December 2008, and then only for two sessions, with values not remaining for a long period below that level since 2006.
For soybeans, US Commodities flagged an objective of $8.75-9.00 a bushel, suggesting a potential fall to five-year lows.
‘We remain bearish’
At Chicago-based Futures International, Terry Reilly said that “we remain bearish over the medium and long-term” for corn, seeing a price of $2.85 a bushel for the March 2015 contract as “still not out of reach” before its expiry.
For November soybeans the “short-term outlook” is a target price of $9.45 a bushel target, “then $9.15 a bushel”.
November soybean futures stood 0.4% higher at $9.66 ј a bushel at 06:30 Chicago time (11:30 UK time).
December corn was 0.4% higher at $3.54 ј a bushel, with the March 2015 lot up 0.3% at $3.68 ј a bushel.
(Source – http://www.agrimoney.com/news/corn-and-soy-prices-to-retreat—but-not-for-long–7636.html)