Rabobank warned of a “high” chance of talks failing over a renewed Ukraine grain export deal, even as it issued somewhat cautious grain price outlooks, in a briefing which forecast gains in robusta coffee values.
The bank said that while there was “some expectation in the market” that the agreement between Kiev and Moscow to allow safe shipments from Ukraine ports will be extended on its expiry next month, “it is highly possible that the grain deal will not be renewed at all”.
“For the Russian side, the extension depends directly on the easing of restrictions on Russian exports – which makes an extension unlikely.
“Despite market noise suggesting” that talks are progressing between Russia and the UN, which is brokering negotiations, “the chances of the deal not being renewed are high”, the bank said, in comments which contrast with the more upbeat assessment from ag giant Archer Daniels Midland earlier this week.
Nonetheless, Rabobank – while acknowledging the importance of a deal to wheat prices – made marginal downgrades to its forecasts for wheat prices, seeing Chicago values average $8.60 a bushel in the first three months of 2023, before rising to $8.70 a bushel in the summer.
Those forecasts are behind the levels that investors are factoring in, of $8.73 a bushel for the March 2023 lot rising to $8.84 a bushel for September.
The bank also trimmed its expectations for values of rival grain corn, reporting that importers “are recoiling as the US dollar strength pushes prices near record levels”.
Indeed, world corn demand “is now seen shrinking (by 3% year on year) for the first time in a decade… softening the pressure on stockpiles”, which for the US have been forecasts by officials shrinking to a decade-low.
Corn futures were seen averaging $6.50 a bushel in the first three months of next year, easing back to $6.25 a bushel in the third quarter, well below the levels that markets are factoring in.
The Chicago March lot was worth $6.92 ¾ a bushel on Thursday, and the September one $6.37 ¾ a bushel.
‘Absolutely massive crop’
The prospect of weakness in soybean markets was also viewed as negative for corn, given the crops’ links as bitter competitors in sowings programmes, with the bank reducing by up to $0.60 per bushel its forecast for quarter-average Chicago prices of the oilseed.
That cut the estimate for prices in the first quarter of 2023 to $13.60, and for the July-to-September period to $13.50 a bushel, some $0.50 a bushel or more below the futures curve.
The downbeat forecast reflected expectations of an “absolutely massive” Brazilian soybean harvest in 2022-23, after healthy rains at sowing time eased worries of the La Nina causing a weather upset.
A harvest expected at about 150m tonnes “will absolutely pad stockpiles” of the oilseed.
For coffee, the bank cut expectations for quarter-average prices too, by up to 31 cents a pound for New York arabica values, and up to $220 a tonne for London robusta.
“Good levels of rainfall in Brazil in recent weeks have reinforced expectations of a bumper crop next year,” the bank said, noting signs of a pick-up in Brazilian arabica exports too.
Furthermore, there are jitters of the world economic slowdown undermining demand, with some evidence already of a dip in China coffee shop sales, spurred by Covid restrictions.
“There is ongoing concern that the drop in disposable income in quite a few countries could curb demand for premium arabica coffee.”
Nonetheless, the bank’s downgraded arabica price forecasts, at 183 cents a pound for the first quarter of 2023 and 178 cents a pound for the third quarter, came in close to levels that the market is pricing in.
The bank was upbeat on prospects for robusta coffee, with its forecast for first-quarter values at $2,000 per tonne, easing back to $1,980 per tonne in the third quarter, well above levels being priced in.
The London March 2023 lot was trading at $1,875 per tonne on Thursday, with the September contract at $1,867 per tonne.
The bank noted that robusta exports from Brazil “continue to lag well behind last year’s pace”, adding that this sluggish performance “may become more of an issue if we see any delay” in shipments from Vietnam, the top robusta grower.