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.
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 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.