Commerz warns against grain price gloom - and cotton fervour


Commerzbank urged investors against getting too gloomy over grain and soybean price prospects, but warned against overexuberance in cotton – even as futures in the fibre extended a retreat.

The bank cut its quarter-average price forecasts for Chicago futures in corn, soybeans and wheat – by as much as $1 a bushel for soybeans, which it now forecast ending the year at about $10.00 a bushel.

Expectations for soybean prices early next year were cut by $0.50 to $10.50 a bushel.

However, those forecasts were above the level expected by investors, who were on Tuesday pricing soybeans for delivery in November at $9.94 Ѕ a bushel, with the March 2017 contract trading at $9.80 a bushel.

'Forecasts still uncertain'

"Recent weeks have seen some of the clouds disappear again from what is a very sunny supply outlook overall," the bank said, flagging reduced concerns over the latest Argentine harvest, and improved expectations for this year's US crop after forecasts for dire weather failed to materialise.

For Brazil, a "crop of over 100m tons has now been predicted again for 2016-17" by the likes of Safras e Mercado, after the disappointing production of 97m tonnes in 2015-16.

"However, the US crop in particular has not yet been harvested – and the South American crops have not even been planted – so all forecasts for 2016-17 are still uncertain," the bank said.

"The rapid shift in the weather forecasts recently demonstrated once again just how prone the market is to short-term corrections."

'Price to bottom out'

In corn too, investors may have withdrawn too much weather premium, Commerzbank said, even as it cut its quarter-average price forecasts by up to $0.50 a bushel.

However, an estimate for futures to average $3.70 a bushel in the October-to-December period was higher than the $3.33 Ѕ a bushel that the December contract was priced at on Tuesday.

And Commerzbank forecast Chicago corn prices returning to $4.00 a bushel by spring next year – more than two years in advance of the July 2019 date that the futures curve suggests.

"For the world as a whole, the USDA also expects, as does the International Grains Council, a [corn] crop of over 1bn tonnes, which looks set to come close to the 2014-15 record.

"However, the fact that even such a large global crop is likely to only just cover current demand, according to the USDA should at least allow the corn price to bottom out, especially since the market was only just balanced in the previous year, too."

Wheat price prospects

Commerzbank was less upbeat over Chicago wheat, for which it cut its forecast for prices in the October-to-December quarter by $0.50 a bushel to $4.50 a bushel.

However, that too was above the $4.35 a bushel at which December futures were trading in Chicago, with Commerzbank also foreseeing values regaining the $5-a-bushel mark in a year's time, ahead of the end-of-2017 period suggested by the futures curve.

And Commerzbank, citing the poor French harvest, held its forecasts for Paris wheat futures at E175 a tonne for the last three months of 2016, rising a little to E190 a tonne for the last half of 2017.

"Prices in Paris are likely to remain under the influence of a disappointing crop in the EU, particularly in France.

"This has already been ensuring for weeks that the wheat price in Paris performs better than in Chicago," the bank said.

'Pretty tight limits'

But for cotton, while the bank hiked its forecasts for New York-traded futures by up to 11 cents a pound, the revised estimates were close to levels hit on Tuesday - a second day of strong retreat in values.

Indeed, December futures stood down the exchange limit of 3.0 cents a pound in late deals, at 73.05 cents a pound, in a retreat fuelled by China's decision earlier this week to extend to the end of next month its auction of fibre from huge state stockpiles.

Commerzbank, highlighting the boosts by the US Department of Agriculture to estimates for the world production deficits in 2015-16 and 2016-17, said that "there are substantial fundamental reasons for the recent price buoyancy given the additional deficit that is on the cards.

However, it also flagged the threat that higher cotton prices pose for demand.

"There are likely to be some pretty tight limits for any increase in price level because this would mean a loss of competitiveness as compared with artificial fibres.

"In other words, although there is certainly some justification for a higher price level than a few weeks ago, a temporary setback in prices would not come as any great surprise."


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