Rabobank cut its price forecasts for a number of agricultural commodities, but to levels above futures curves, saying that speculators had overcooked their selling, and that Ukraine’s crisis may still offer support to grain values.
“Much of the fund sell-off across commodities seems overdone,” the bank said, following a four-week period in which managed money has slashed its net long in futures and options in the top 13 US-traded ags by more than 40%, to 482,567 contracts.
This was, for instance, “the case for sugar”, for which the bank trimmed its forecasts for New York prices, but to values which, at 18.0 cents a pound for the current quarter and 18.3 cents a pound for the last three months of 2022, remained above the futures curve.
October raw sugar futures were trading on Friday at 17.64 cents a pound, with the March 2023 lot worth 17.78 cents a pound.
“We expect some bullishness ahead,” Rabobank said, citing the prospect of a recovery in Brazilian ethanol prices later in the year, “as cane volumes go down” seasonally, as well as overselling by funds.
For Chicago wheat too, the bank downgraded its forecasts for quarter-average prices, by more than $1 per bushel to $8.35 a bushel for the July-to-September period and to $8.65 a bushel for the last three months of 2022.
However, this represented a “mildly bullish forecast”, the bank said, with the Chicago September contract trading at $8.11 a bushel, and the December lot at $8.29 ¾ a bushel.
“Funds look oversold” in the contract, after a ninth successive week of net selling up to July 19, the longest such spree in eight years, GrainPriceNews analysis shows.
Even assuming the deal holds, the 10m tonnes that the US Department of Agriculture, whose data set world benchmarks, is already factoring in for Ukraine wheat shipments in 2022-23 “appears optimistic”, Rabobank said.
Furthermore, investors should be aware that “we will still see a large drop in [Ukraine’s] winter wheat plantings in September and October, supporting the market in the longer term”.
While Rabobank did not give any reasoning behind this expectation, other commentators have said that the weak prices that Ukrainian farmers are receiving, the squeeze on inland storage and on supplies of the likes of fertilizer will mitigate against significant winter crop sowings.
‘Vulnerable to a late-summer rally’
For soybeans too, a forecast for fourth-quarter Chicago prices cut to $15.10 a bushel remained above the $14.73-a-bushel level that the November lot was trading at on Friday.
The fact that the oilseed has fallen less heavily from highs than grains, and a “deteriorating demand outlook, especially from China, do not leave us particularly bullish”, the bank said.
The bank forecast that soybean imports by China, the top buyer, were “expected to stay low” in the July-to-September period, “as it contends with a lower hog herd and soaring pork inflation”.
Nonetheless, “low” US soybean stocks – forecast to rise by an “insignificant” 15m bushels to 230m bushels, on USDA forecasts – “recent record north hemisphere temperatures and the return of some price-sensitive demand make Chicago soy vulnerable to a late-summer rally”.
For Chicago corn, the bank slashed its price forecasts by more than $1 a bushel for the current quarter, to $6.25 a bushel, with fourth-quarter values expected to average $6.40 a bushel – both estimates a little ahead of the futures curve.
The bank said it had “tamed its bullishness significantly on expectations that economic malaise and declining feed demand would solve surging supply-side inflation”.
Nonetheless, the bank said that the drop in prices from April highs would revive buyers’ appetite, while underlining that it was “sceptical” over prospects for the deal to safeguard grain exports from Ukraine, the top corn shipper outside the Americas.
“Beyond the deal’s limitations (and there are many), any disruption – like the recent rockets into Odessa port – could lead to skyrocketing [corn] prices.”
“Very bearish vs very bullish”
Rabobank’s price forecasts for New York arabica coffee, at 208 cents a pound for the current quarter and 204 cents a pound for the October-to-December period, remained close to the futures curve.
The bank said that the market faced a “very bearish story”, factoring in the likes of global economic weakness, fund selling and the recovery in Brazil’s exportable arabica surplus, and a “very bullish story” centring around the dwindling level of stocks certified for delivery against New York ICE futures.
At 700,050 bags as of Thursday, ICE certified stocks of arabica coffee are at the lowest since September 1999, and a “far cry from the 2.17m certified bags stored in July 2021”.
“The Brazilian [2022-23] export campaign is not fully underway, so the market will remain tight until the export pace ramps up and new crop coffee enters the market,” the bank said.
London robusta coffee futures were forecast averaging $2,080 per tonne in the current quarter, and $2,050 per tonne in the October-to-December quarter, values ahead of those investors were factoring in. The September contract was trading at $2,026 per tonne, and the November one at $2,028 per tonne.