Societe Generale sounded an upbeat note on grain and soybean futures – foreseeing the US corn yield falling short of lofty expectations, while low wheat prices prompt a drop in sowings beneath levels already at a 46-year low.
The bank made small downgrades to forecasts for quarter-average prices of Chicago corn and soybean futures, with bigger cuts, of up to $0.56 a bushel, to expectations for wheat futures.
However, even after the cuts, the bank’s estimates were above the level investors are pricing in, especially for soybeans for which it forecast front futures averaging $10.34 a bushel in the last three months of 2016, and staying above $10 a bushel for at least the next year.
November 2016 futures were trading on Thursday at $9.81 ¼ a bushel.
For corn, spot futures were seen averaging $3.50 a bushel in the last quarter of this year, ahead of the $3.34 ¾ a bushel December futures were trading at.
Wheat futures were forecast averaging $4.21 a bushel for the quarter, ahead of the $4.03 a bushel being priced in by December futures.
Corn ear ‘inconsistencies’
SocGen analyst Rajesh Singla said that hopes for higher corn prices reflected in part expectations that US farmers “may refrain from selling at or below $3.20 a bushel” – an opinion in line with that of many other observers.
Separately, Richard Feltes at Chicago-based RJ O’Brien, Richard Feltes said that “commentators continue to report that farmer will sell soybeans and hold corn” at the forthcoming harvest, encouraged by the relatively weak price of the oilseed.
However, SocGen also restated a forecast for a US corn yield of 170 bushels per acre –a figure which, while strong, would come in below the 175.1 bushels per acre expected by the US Department of Agriculture.
“We noticed inconsistencies in corn’s ear development in most of the corn fields,” Mr Singla said, referring to his findings as a member of the Pro Farmer crop tour late last month.
US corn supplies should also be sapped by strong exports – fuelled by prices which “are lowest in the world”, and with reduced competition from Brazil, after the South American country’s disappointing safrinha corn harvest.
SocGen pegged US corn stocks at the close of 2016-17 at 2.13bn bushels, some 280m bushels below the official USDA forecast.
‘Sowings to fall’
For wheat, the bank flagged the potential for price support from prospects of a likely cut in US wheat sowings for the 2017 harvest, and a retreat in yields from this year’s elevated levels.
“US farmers should continue to reduce planting as prices are likely to remain below their cost of production,” Mr Singla said.
US wheat sowings, at 50.82m acres for the 2016 harvest, were already the lowest since 1970, with the 36.54m acres planted with winter crop the weakest in more than a century.
Mr Singla said that price expectations might have been higher were it not for the headwind of a stronger dollar, which cuts the competitiveness of dollar-denominated exports, and the likelihood of a revival in output next year in the European Union, the top producer.
Still, SocGen saved its most upbeat comment for soybeans, saying it had a “bullish view” on futures in the oilseed, which it termed a “value buy”.
The call was based largely on expectations of US soybean exports beating official estimates both for 2015-16 and 2016-17, meaning the country’s stocks will end the new season at 293m bushels, nearly 40m bushels below the official USDA forecast.
“We see limited potential for soybean acreage growth in Brazil, the largest exporter of soybean, due to the severe recession and tight credit situation in the country,” Mr Singla said.
“The stagnant acreage growth in Latin America, and stronger demand growth from China during 2016-17, should enable US soybean farmers to gain market share from their Latin American counterparts.
(Source – http://www.agrimoney.com/news/socgen-foresees-rises-in-grain-futures-terms-soy-a-value-buy–9913.html)