Rabo upgrades wheat price forecast - just ahead of month-end price surge

01.03.2018

Rabobank upgraded its wheat price forecasts, and flagged “bullish risks” to corn futures, even as grain markets soared on Wednesday, lifted by deepening worries over dryness in Argentina and the US southern Plains.

The bank also, in a monthly report, raised its forecast for cocoa prices to a little above levels investors are expecting, while retaining a somewhat bullish rating on coffee, but cut its estimates for values of sugar, which it said were “to remain under pressure”.

On wheat, the bank nudged higher its forecasts for quarter-average prices by up to $0.10 a bushel, flagging a “constructive view” on prices “as weather risks play out”, with drought bringing “significant risk” to winter wheat in the US southern Plains, while frost threatens EU crops.

“With little snow cover across Europe,” and temperatures as low as – 15 degrees Celsius expected this week, “the threat of crop winterkill” should at least keep Paris wheat futures above contract lows.
 
‘Weather leans positive for prices’

The overnight comments came ahead of a rally which saw Paris wheat futures for May soar 1.5% to a four-month high of E168.00 a tonne in late deals, just short of Rabobank’s E170-a-tonne forecast for average spot prices in the April-to-June quarter.

Chicago soft red winter wheat for May stood up 3.9% at $4.95 ½ a bushel in late morning deals – a seven-month high for a nearest-but-one contract, and well ahead of Rabobank’s upgraded forecast for prices averaging $4.80 a bushel for the April-to-June period.

Kansas City hard red winter wheat for May were up 3.5% to $5.22 ½ a bushel in the rally, which follow official data earlier this week showing deterioration in the US winter wheat crop, thanks to dryness which shows no sign of ending for now, and will become increasingly significant as seedlings emerge from dormancy.

“Weather leans positive [for prices] with dryness extending into 15-30 day for both Argentina and the US hard red winter wheat belt,” said Richard Feltes at Chicago broker RJ O’Brien.

‘Bullish risks’

For corn, Rabobank flagged that “bullish risks” were “becoming more apparent” with the Argentine dryness, ideas of lower Brazilian safrinha crop sowings, and of US farmers switching extra land in spring sowings from the grain to soybeans.

The bank - cutting its forecast for Argentina’s corn crop to 36.5m tonnes, and for the Brazilian harvest to 85.5m tonnes, while flagging the “real potential” for US corn sowings to fall some 900,000 acres to 89.5m acres – said that “bullish factors are emerging which could soon spur a further rally in prices”.

Chicago corn futures for May stood up 0.9% at $3.82 ½ a bushel, reaching the highest since August for a nearest-but-one contract.

The rally took the price well ahead of the $3.70-a-bushel average that the bank forecast for spot values in the April-to-June period.

‘Bullish influence’

Among soft commodities, Rabobank raised its forecast for quarter-average cocoa futures by up to £70 a tonne for the London contract and $120 a tonne for New York prices.

For the New York contract, at least, that took forecasts ahead of the futures curve, with an outlook of in the April-to-June period of $2,250 a tonne above the $2,213 a tonne that the May lot was trading at on Wednesday.

Dryness was starting “to threaten” yields for West Africa’s mid crops, with low bean counts and smaller-than-average pod sizes reported in both Cote d’Ivoire and Ghana, “a development which would spell a disappointing 2017-18 mid-crop harvest”, the bank said.

“With the market pricing in a small surplus this season, disruption to mid-crop yields could draw the global supply and demand into more balance territory – a bullish influence.”

‘Ongoing high global supply’

For coffee, the bank stuck by forecasts which, at 127 cents a pound for New York arabica coffee in the April-to-June quarter and $1,810 a tonne for London robusta beans, were ahead of the futures curves.

The bank noted “some recovery” in domestic Brazilian coffee values, and “import needs” in Indonesia, which hint at a downbeat harvest in the major robusta-growing country.

Meanwhile, price forecasts for raw sugar were cut by up to 0.5 cents a pound, with the April-to-June estimate cut to 13.6 cents a pound, with an “impressive harvest” in India and strong supplies in Europe among factors weighing on values.

“The outlook into 2018-19 shows an ongoing high global sugar supply, most likely resulting in another global surplus and keeping continued pressure on sugar prices.”


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