Rabobank sees wheat, corn futures in 'race to the bottom'


Rabobank slashed its outlook for feed grain prices, citing a "global feed grain glut".

Chicago feet wheat and corn are in a "race-to-the-bottom", thanks to heavy supplies and big harvests.

Rabobank forecast corn and wheat price well below the current forward curve.

Exceptional US harvest

Rabobank lowered its forecast for Chicago wheat prices, "record projected global feed supplies, ensuring a particularly competitive export environment".

"Wheat prices fell significantly through late June, as exceptional US harvest prospects and heightened confidence in the US corn crop sparked a price race-to-the-bottom across feed grain cash markets," Rabobank said.

"Both record US yields and near-record ending stocks… plus an impending EU feed-quality crop will contribute to a 2016-17 global feed grain glut," said the bank.

"Following the northern hemisphere harvest, wheat is expected to follow the corn market more closely, as both grains compete for demand."

Undershooting the curve

And Rabobank warned that the USDA's latest forecast for Chinese 2016-17 wheat feeding, at 15m tonnes "is somewhat optimistic in our opinion".

"Government intentions to auction domestic corn stocks, having also removed the price support mechanism, should result in high availability of competitively priced Chinese feed corn, which could force a further 2m to 3m tonnes of wheat onto the global balance sheet," the bank said.

Rabobank forecast Chicago wheat prices averaging $4.00 a bushel in the July to September period, and $4.30 a bushel in the October to November period.

In comparison, September Chicago wheat futures are currently trading at $4.18 a bushel, with December Chicago wheat futures are currently trading at $4.45 a bushel.

Heavy Russian crop

Rabobank forecast European wheat production at 154m tonnes, compared to the USDA forecast of 156.5m tonnes.

But Russian production was seen at a record 65.6m tonnes, 600,000 tonnes ahead of the USDA number.

"With crops in good condition, demand for high-quality grain is likely to shift across to the Black Sea, driving Russian exports to 27.1m tonnes," Rabobank said.

Corn in 'very good shape'

And the size of the US corn crop is weighing on price prospects for grains as well, Rabobank said.

"Traveling through the US over the course of the last few weeks, we have seen a lot of corn planted, and most of it is in very good shape," Rabobank said.

"US crops are currently experiencing severe heat, but forecasts still hold good rains and a cooler outlook," Raboank said.

"We therefore still predict yields to exceed those currently forecast by the USDA."

Stocks pile up

The size of the harvest means that US stocks are set to build, despite "very strong expected exports, potentially hitting a 30-year high of 2.3bn bushels.

Rabobank saw corn futures in Chicago averaging just $3.00 a tonne for the rest of the year.

Corn futures for September are currently trading at about $3.36 a bushel, with the December contract at $3.43 a bushel.



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