RABOBANK ISSUES CROP PRICE FORECASTS, DOESN'T SEE CORN RETURNING TO $4
Aug. 5, 2014
Rabobank ditched hopes of corn futures returning to $4 a bushel any time soon, slashing its forecast for soybean values, too, but retained expectations of a revival in cotton and sugar prices, and upgraded its coffee price outlook.
The bank cut by up to $0.57 a bushel its forecast for Chicago corn futures, reducing to $3.50 a bushel the estimate for the nadir in prices - in quarter-average terms - in the October-December period.
That implies some further downside for the December lot, which stood at $3.64 a bushel on Monday, and would mark the weakest quarter since the April-to-June period 2010 for Chicago corn futures, on a spot contract basis.
The forecast assumes a record US corn yield of 170-175 bushels per acre, in line with the latest estimates on Friday from brokers Doane, at 172.3 bushels per acre, and Linn Group, at 172.8 bushels per acre. There is some talk that Informa Economics will update its estimate later on Monday.
The US Department of Agriculture currently pegs the yield at 165.3 bushels per acre, itself a record, but is expected on August 12, in its monthly Wasde crop report, to lift the forecast.
Rabobank, which had forecast corn futures remaining above $4.00 a bushel for the next year, cited for its yield forecast evidence that strong second-quarter rainfall and low July temperatures bring bumper harvests.
"Years with above 11.5 inches of second-quarter accumulated precipitation in Corn Belt states and average July temperatures below 72.5 degrees Fahrenheit tend to produce yields 12-15 bushels an acre above trend yields," the bank said - criteria which 2014 meets.
Although the link "is not perfect, in three of the last four years where these conditions held, yields exceeded the trend by 14-15 bushels per acre".
"While dryness in western Iowa may still cause production concern over the next few months, overall crop condition still supports the bearish trend."
The forecast for soybean prices was cut by up to $1 a bushel, meaning a market nadir expected in the October-to-December quarter at $10.20 a bushel.
That is below the $10.63 3/4 a bushel that November soybeans were trading at on Monday, and would also represent the weakest quarterly performance since the second quarter of 2010.
That said, there is still the prospect for some temporary upturns in prices, with Rabobank cautioning that "prices may still see weather-induced rally throughout the month of August", a key month for the crop in the US, bringing the sensitive pod-setting period.
"Despite the optimistic forecasts, risks remain regarding the realisation of the crop."
Sugar to sweeten
However, for sugar, although the bank cut by 1.0 cents a pound to 17.2 cents a pound its forecast for average New York prices in the current quarter, it stood by expectations of futures recovering to average 19.7 cents a pound in the first three months of 2015.
That is well above the 18.37 cents a pound that March 2015 futures are factoring, and would mark the best performance in more than two years.
"Physical offtake has emerged below the 17 cents a pound mark," the bank said, noting the extent to which US regulatory data show users covering demand ahead.
"Commercial participants have been increasing gross longs over the month limiting, to a degree, the brunt of speculator selling pressures."
And although the reduced expectation of an El Nino has reduced some of the threat to world production, "drier-than-normal conditions continue to persist across cane growing regions of India, Thailand, Australia and Indonesia".
'Much more competitive'
For cotton too, the bank forecast a recovery in prices, to 75.0 cents a pound by the April-to-June quarter, well above the 64.80 cents a pound that May 2015 futures are factoring in.
Late in 2015, "a seasonal pick-up in physical offtake, coupled with the lowest new crop prices of the fibre since 2008", reaching 61.90 cents a pound on Friday for October delivery, "are expected to stimulate demand, providing price support.
"At current price levels, cotton is much more competitive against man-made fibres," the bank said, noting too firm basis levels in the exporting countries of the US and Australia.
However, the one commodity for which Rabobank raised estimated was for coffee, lifting forecasts by up to 30 cents a pound to 190.0 a cents a pound from the October-to-December quarter half way through 2015.
"Uncertainty persists over the size of this season's Brazilian crop, while cases of early flowering are compounding yield concerns for next season," the bank said, while keeping its estimate for this year's Brazilian crop at 47.5m bags, above expectations from the likes of Citigroup.