Rabobank, while warning over the risk of recession, lifted its wheat price forecasts on concerns over Ukraine’s grain export deal with Russia, in a briefing which raised expectations for robusta coffee futures too.

The major agricultural lender said that commodity markets were “pondering the risk” of a recession which “could weaken the demand side for a number of energy and luxury commodities”.

Europe was a particular economic focus given its “looming winter energy crisis”.

However, the outlook for wheat prices looked stronger than a month ago nonetheless, given the “extremely uncertain” outlook for the deal with Russia which reopened three Ukraine ports to exports, and which lapses in November.

‘The deal may crumble’

Russian President Vladimir Putin’s criticism this month that the agreement was seeing Ukraine’s grain exported to Western countries rather than developing ones “did very little to quell our concerns that the deal may crumble”, Rabobank said.

“The overarching fear among market participants is that Russia publicly stating its dissatisfaction with the current terms of trade could lead either to Russia renegotiating the deal with limited terms of trade or cancelling the deal altogether.”

While Russia itself, the top wheat exporter, appears to be harvesting a record 100m-tonne harvest, “the risk for” its exports is that the country “will further escalate the war”, the bank said.

“If this occurs, trade, which is steadily picking up, will become increasingly complex as shipping and insurance risks become even more challenging.”

Price forecasts

Noting the threat from dryness to Argentina’s crop too, the bank raised its quarter-average forecasts for Chicago wheat futures by up to $0.70 per bushel.

However, at $8.75 per bushel for the current quarter, and $8.90 per bushel for the first three months of 2023, the forecasts remained a little behind the futures curve, with the March 2023 lot for instance trading on Friday at $9.17 a bushel.

The forecast for Paris wheat futures, lifted by up to E25 per tonne, to reach E350 per tonne for the current quarter and E345 per tonne for the next one, were in line with the levels that investors are factoring in.

Robusta demand

Rabobank also raised its forecast for London robusta coffee futures next, by up to $150 per tonne, taking the estimate for average prices in the January-to-March period to $2,180 per tonne, and for the second quarter to $2,160 per tonne – both a little ahead of the futures curve.

The growing switch by roasters to using robusta, given its hefty discount to arabica coffee, “could be exacerbated in a recession scenario”, given its cheaper price.

With stocks in top robusta grower Vietnam running down, “if Brazil robusta exports don’t go up before January, the robusta market might need to rise at least $100 in order to incentivise an increase in export volumes out of Brazil before the Vietnam 2022-23 crop comes in and is exported”.

Sugar downgrade

By contrast, for arabica coffee, the bank stood by expectations of New York prices running down to 188 cents a pound by the third quarter of next year, well below the 204.55 cents a pound investors are factoring into the September 2023 contract.

It highlighted a promising start to Brazil’s arabica tree blossoming season, saying that “a good fixation of the flowering now, assisted by a continuation of the wet weather in November, could lead to lower arabica prices”.

And for New York raw sugar futures, price forecasts were slashed by up to 2.1 cents a pound – lowering the estimate for values in the January-to-March period of 2023 to 16.9 cents a pound, well behind the futures curve, easing off to 16.5 cents a pound by the third quarter.

The bank highlighted the prospect of Brazil, thanks to the cost of living crisis, holding its fuel-tax cuts beyond an end-of-2022 deadline – so keeping a lid on ethanol prices, and boosting the appeal to mills of making sugar instead, at a time of swelling cane volumes.

“Brazil will likely see a recovery in sugar cane volumes given that rainfall has been significantly better in 2022 versus 2021.

“The prospects of lower ethanol sales and higher sugar cane volumes could result in high forward sugar sales out of Brazil in the coming months.”

‘Enduring supply scarcity’

For corn, the bank’s forecasts stood little changed, with Chicago prices seen averaging $6.50 per bushel, or a little above, for the rest of this year and the first half of 2023, although levels which remain a little behind those investors are currently pricing in.

Rabobank highlighted the prospect of US corn stocks ending 2022-23 at 1.1bn bushels, “almost half of normal and the lowest level in a decade.

“Consumer reticence is increasingly apparent, in both feed and energy, but even a US and global corn demand contraction won’t prevent enduring supply scarcity.”

While Brazil’s safrinha corn crop could provide supply relief, this would not kick in until July, and is anyway “susceptible to La Nina”, which can bring dryness to major growing areas.

‘Buyers are already fantasising’

Forecasts for Chicago soybean futures were trimmed by $0.20 per bushel or so, to $14.20 a bushel for the October-to-December period, easing to $13.90 a bushel by the third quarter of 2023, but staying in line with the futures curve.

Shrunken estimates for the newly-started US harvest “are seen providing foundational support for Chicago soybeans in the year ahead”, the bank said, noting too the prospect of some recovery in Chinese imports – albeit to “closer to 95m tonnes” than the 97m tonnes expected by the US Department of Agriculture.

However, on the downside for prices, “soy buyers are already fantasising about well-capitalised Brazilian farmers’ intent to plant 4% more soy” for 2022-23, with the potential for a harvest of about 150m tonnes.

“While we are wary of bare US stockpiles, sharply higher Argentine soy exports and prospects of a decent Brazilian harvest in early 2023 underpin our expectations for a Chicago soy [price] inflection in the fourth quarter of 2022.”