ABN forecasts seasonal grain rally, but supplies remain heavy

12.08.2016

Grain prices will rally from their seasonal summer lows, but the size of global supplies will leave markets trading sideways by the end of the year, ABN Amro said.

The bank maintained its price forecasts, despite the recent sell-off, with a rally expected by the end of the summer period.

But there is "still more than enough" supply around, ABN said.

Summer sell-off

Grain markets saw a broad sell-off from their June peak leaving wheat, corn, and soybean futures in Chicago all down 20%.

"Traders evidently have little faith in a strong price recovery in the near future and there was widespread profit-taking before the start of the holiday period," said ABN.

The June grain market rally was driven by global weather worries, including potential dryness in the US Midwest and heavy rain in Europe.

"Now that the impact of these weather events appears to have been limited, prices are starting to go down again," ABN said.

And ABN said that "unrest" in the market caused by La Nina threats was easing, as crops are now sufficiently advanced that any impact from an event "will not be too severe".

Wheat to rally, up to a point

ABN forecast Chicago wheat prices to hit $5.00 a bushel by the end of the year. December Chicago wheat futures are currently trading at $4.37 a bushel.

But the bank noted the continued global wheat surplus, with production forecast to once again outstrip demand this year.

"After the summer period, prices are expected to pick up again due to the seasonal effect, but will then settle into a sideways trend," ABN said.

Ample corn stocks

Corn futures were forecast to rise to $4.15 a bushel, compared to December futures currently trading at $3.31 a bushel.

"Corn, like wheat, is amply available," ABN said.

"As noted, previous fears that weather damage might dampen output in the upcoming season proved unfounded so that the crop forecasts have been revised up."

ABN said that the expected output will exceed consumption so that, after a brief revival at the end of the summer period, corn prices are also expected to move sideways in the rest of 2016.

Good soybean supplies

Soybean futures were forecast for modest gains, finishing the year at $10.50 a bushel. The January contract is currently trading at $9.84 a bushel.

But soybeans are in a stronger position that other grains, as global demand remains strong.  

"Soybean production is set to break all records in the coming season," ABN said, noting that the USDA forecast for global production is up some 4% year on year, at 325m tonnes.

"This increase, however, is insufficient to meet the growing demand," ABN said, with consumption seen at a record 328m tonnes, driven by "persistently high Chinese demand".


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