Commerz cautious on grain, soy, cotton prices - but upbeat on rapeseed


Commerzbank undermined expectations for further rises in grain, soybean and cotton futures, despite lifting prices forecasts, but remained sanguine on rapeseed, saying supplies should "remain rather scarce".

The bank raised by up to $0.30 a bushel, into 2018, its forecasts for Chicago wheat futures prices on a quarter-average basis, and ditching ideas of a drop below $4 a bushel in the spring.

For Chicago soybean futures, the bank also raised its forecasts for prices into next year, by up to $0.50 a bushel, now seeing 2017 prices overall match the $9.90 a bushel achieved in 2016.

Hopes for short-term Chicago corn prices also received a small, upgrade, while expectations for New York cotton futures were lifted by up to 4 cents a pound.

However, the forecasts remained, broadly, below the futures curve, with Commerzbank flagging the weight on prices from boosts to supplies – either from last season or, as with cotton and soybeans, ideas of growing sowings for 2017-18.

'Stocks can't rise for ever, but…'

For wheat, the bank acknowledged a "growing awareness that a further unlimited build-up of stocks cannot be expected", especially given falling sowings and the prospect of lower yields in the US, which achieved bumper results last year.

Still, "by contrast, European Union crops stand a good chance of improving, after being so disappointing in 2016".

And in the former Soviet Union, "so far, there are no signs of major frost damage… because it was either not too cold or because many fields in the affected regions were protected under a sufficiently thick snow cover".

Separately on Wednesday, Russian Agriculture Minister Alexander Tkachev reassured on frost damage, saying that "we do not have major concerns over the condition of winter grains".

Commerzbank forecast Chicago wheat futures ending the year at about $4.30 a bushel, well below the $4.76 Ѕ a bushel that December futures are factoring in.

'Further price gains unlikely'

For soybeans, the bank, citing large US sowings this year, forecast futures averaging $9.50 a bushel in the October-to-December period, nearly $0.50 a bushel below the price that Chicago's November lot is trading at.

"Most short-term market players are betting on prices continuing to rise, which we think unlikely," Commerzbank said, flagging that if US soy sowings beat corn plantings this year for the first time since 1983, as investors expect "prices would no doubt suffer accordingly.

"Even if yields return to normal, expanding the area under cultivation by almost 7m acres, or 8%, would allow another large US harvest."

And while higher US soybean area would come largely at the expense of corn, "this need not cause the global [corn] balance to slide into a deficit.

Given record high global stocks forecast for the close of 2016-17, "corn supply will not become tight, and this makes it more difficult for the price to recover significantly".

'Surprise rally'

For New York-traded cotton, Commerzbank flagged "surprise" at the recent rise in futures, which hit a five-month high for a spot contract of 75.86 cents a pound on Wednesday, in a rally the bank attributed in part to a squeeze on Indian supplies.

"One factor may still be the scarcity of cash in India, where the government invalidated larger banknotes in early November.

"Over the period from October until December, producers therefore made 16% less cotton available."

However, the higher values may provoke a rebound in cotton sowings from levels which have according to US Department of Agriculture records hit the lowest since records began in the early 1960s.

"It seems as if cotton acreage and possibly also production are to be expanded in 2017-18," a factor which will encourage "the price of cotton to retreat again" to average 71 cents a pound in the October-to-December period, below the 72.05 cents a pound which December futures are pricing in.

'Rather scarce'

However, the bank was sanguine on rapeseed futures, for which it nudged price forecasts higher by up to E0.10 a tonne, seeing them end the year at E390 a tonne, a little above the E385 a tonne November futures are trading at.

EU output is expected to rise slightly, after two years of declining output, with Canada's production also seen growing this year, as outlined this week in the country's first official crop forecasts for 2017-18.

"In this case global production may recover, but rapeseed should still remain rather scarce even then."


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