Rabobank, citing demand concerns, trimmed many agricultural commodity price forecasts, but cautioned against expectations of a renewed dive in futures – except for arabica coffee.
The bank, trimming price expectations for Chicago corn, soybean and wheat futures, said it had “tamed” its “longstanding bullish expectations on grains and oilseeds”.
It flagged demand factors, seeing “consumers lead an inflation-led shift to lower consumption”, against a backdrop of ag prices which, while below spring highs, remain historically elevated, supported by strength in the dollar as well as by supply tightness.
“For importers, the real concern is an appreciating dollar,” which on Monday returned close to a July peak against a basket of currencies which was the highest since September 2002.
A strong dollar cuts the affordability of dollar-denominated exports, such as many ags, for buyers in other currencies.
Nonetheless, the bank too highlighted that markets were negotiating what is often a soft period for prices anyway, in witnessing the harvests which bring a wave of crop supplies.
“We’re in the midst of, or approaching, northern hemisphere harvests that typically mark seasonal lows [as] goods are at their most plentiful.
“Yet grain, oilseed and cotton prices are holding strong,” said the bank, although terming wheat a “notable” exception, in trading close to six-month lows, suffering pressure from a strong Russian harvest and the reopening of Ukraine to grain exports.
‘Not willing to take the risk’
However, while cutting its forecasts for Chicago wheat futures, with the outlook for fourth-quarter values downgraded by $0.45 per bushel to $8.20 per bushel, this remained above the $8.01-a-bushel level that the December contract was priced at on Friday.
Rabobank’s forecasts for further-ahead lots were largely in line with the futures curve.
The bank said that grain shipments from Ukraine remained “slow” despite the export deal with the UN, Turkey and Russia.
“To date, we have not seen any new private vessels enter Ukraine, only ships sponsored by the UN/Turkey (and very few of those), which implies that, at present, ship owners and insurers are not yet willing to take on the risk of operating in Ukraine.”
While Russia’s wheat harvest may top 90m tonnes for the first time, its exports “have been sluggish” too, undermined by a strong rouble and “expensive freight and insurance premiums”.
For soybeans, the bank cut its price forecasts for 2022-23 values by up to $0.65 per bushel, to levels, such as the $14.45 a bushel expected for the fourth quarter of this year, a little below those that investors are factoring in.
“Chicago soy will be profoundly affected by economic challenges, especially in China,” the top importing country, the bank said.
“However, bare US reserves of 200m bushels, a six-year low, should prevent a hard landing for prices,” which will in fact stand at around $14.20 a bushel in a year’s time, well above the sub-$14-a-bushel prices that investors are factoring in.
For corn, Rabobank forecast a return of prices above the futures curve too in a year’s time, to some $6.35 a bushel, after a period spent a little below, with values forecasting bottoming out at $6.40 a bushel in the last three months of 2022.
While “historically low exporter supplies command attention and a commensurate price premium” for corn, on the downside “unaffordable meat and energy are driving the first corn demand contraction in a decade and taming the bull”.
‘Ongoing La Niña…’
Among soft commodities, Rabobank was sanguine on New York raw sugar, standing by forecasts for prices remaining comfortably above 18.0 cents a pound for the next year, compared with market expectations for values to slip below 17.3 cents by then.
“The ongoing La Niña could result in dryness in the months ahead” for Brazil’s cane crop.
“This could become a problem if rainfall levels are lower than normal from November onward,” the bank said, noting a “precarious” situation for the European Union’s drought-hit sugar beet crop too.
However, for arabica coffee, the bank’s price forecasts – while nudged higher to 206 cents a pound for the October-to-December period – remained well behind the futures curve, foreseeing a dip to 188 cents a pound in a year’s time.
New York arabica coffee futures for December were on Friday worth 237.85 cents a pound, up 11% for this week, with the September 2023 lot at 221.75 cents a pound.
The bank said that “recent strength in the real” was lifting prices for now, with the Brazilian currency outperforming even the dollar. Firmness in the real boosts the value in dollar terms of assets of which Brazil is a major exporter.
But there was likely to be volatility ahead for the real, with Brazilian elections due in October.
Meanwhile, for London robusta coffee, up by 4% this week for November, the bank lifted its fourth-quarter price forecast by $200 per tonne to $2,250 per tonne, with uplifts for further-ahead contracts too close to the futures curve.
Rabobank noted “concerns” over Vietnam’s 2022 harvest outlook, “heightened by limited rainfall in some robusta-growing regions in recent weeks.
“The tightening dynamics of the robusta market may in part explain why managed money increased their net length in the first half of August.”