Wheat futures represent the best bet among grains for 2023, Rabobank said, even as futures tumbled, undermined by the renewal of the UN-brokered Ukraine export deal.

The bank said that wheat prices will remain “well supported” by the prospect of a fourth consecutive world production deficit in 2023-24, as Russia’s production retreats from this year’s record high, and Ukrainian output remains restricted by knock-on effects of war.

“Wheat prices will have to remain well above cost of production to incentivise area expansion,” the bank said, forecasting Chicago prices averaging $8.68 a bushel in the first three months of 2023, near which they will hold steady for the rest of the year.

‘Aggressive sales’

The forecast came shortly before wheat prices fell on the announcement that Moscow and Kyiv had agreed to a 120-day extension to the deal allowing safe passage for Ukraine grain exports from selected ports. (For analysis of the deal, click here.)

“I welcome the agreement by all parties to continue the Black Sea grain initiative to facilitate the safe navigation of export of grain, foodstuffs and fertilizers from Ukraine,” Antonio Guterres, the UN secretary general, said.

Chicago wheat futures for December fell by 2.9% at one point, before recovering to close down 1.3% at $8.06 ¾ a bushel.

With the December 2023 contract settling down 1.3% at $8.54 ¾ a bushel, the Rabobank forecasts were shown well above the futures curve.

Besides easing the threat of interruptions to Ukraine grain supplies, the deal has presented an “elevated risk that both Russia and Ukraine, anxious to convert stored grain into cash for other uses, will aggressively offer wheat and corn in effort to lock in sales”, said Richard Feltes at broker RJ O’Brien.

Chicago corn futures for December actually closed up 0.3%at $6.67 ½ a bushel, after spending much of the day in negative territory.

Output hurdles

Rabobank forecast a world wheat production deficit of 3.70m tonnes next season, following on from a 5.87m-tonne shortfall in 2022-23.

“Russia will likely not have another record crop in 2023-24, and the wheat area in Ukraine is expected to contract by 30% versus 2021-22 levels,” the bank said.

Meanwhile, the US winter wheat crop “is being planted under dry conditions”, which have landed the crop with its lowest official condition rating on data going back 35 years.

And while “there is a chance” for an improved European Union crop in 2023, “several heatwaves in the last few years dim the hopes of bumper crops in the future”.

‘Bearish call’

For corn, the bank forecast Chicago prices averaging $6.50 a bushel in the first three months of 2023, before easing to $6.05 a bushel in the October-to-December quarter – estimates a little behind those investors are factoring in.

“Recession-weakened demand and reflationary hopes underpin our bearish Chicago corn call,” Rabobank said, while foreseeing too supply “relief” from a Brazil’s 2023 output, and from a US harvest next it forecast swollen by a rise of 2.4m acres to 91m acres in sowings.

The disadvantage to growing corn, in its appetite for expensive fertilizer, will be “outweighed by timely plantings and a highly favourable price ratio to soybeans”, the grain’s main rival in the US spring sowings programme.

Nonetheless, the bank downplayed the prospect of a corn price collapse, saying that “a combination of reticent farmers and uncovered consumers will keep price breaks elusive”.

‘Protective layer’

For soybeans, the bank forecast Chicago prices slipping from an average of $13.60 a bushel in the first three months of 2023 to $13.10 a bushel in the October-to-December period – levels well below those investors are factoring in.

The Chicago March contract was on Thursday trading at $14.17 a bushel, with the November lot at $13.60 ¾ a bushel.

“Exporter supply increases [in 2022-23] will outpace China’s demand revival and provide a protective layer to bald supplies,” the bank said, foreseeing a world production surplus of 7.30m tonnes this season, backed by a record Brazilian harvest and improved output in Argentina and Paraguay.

Meanwhile, China’s “import rebound will remain below historic highs, thanks in part to higher domestic production, allowing a significant portion of exporter harvests to flow into stockpiles”.

‘A surplus situation’

Soyoil futures will fall too, to end 2023 at about 58 cents a pound, with palm oil – which for February tumbled by 4.3% to 3,850 ringgit a tonne in Kuala Lumpur on Thursday, undermined by a strengthened ringgit and worries over the hit to Chinese demand from anti-Covid restrictions – poised to extend its decline too.

“The combination of a year-on-year palm oil production increase and a minimal year-on-year biodiesel demand increase in 2023 in South East Asia will result in a global surplus of palm oil in 2022-23.

“On top of this global soft oils will also be in a surplus situation… on the back of increasing year-on-year global soyoil and rapeseed oil production.”

For more on Rabobank’s ag price outlook for 2023, click here.

For more on the outlook for live cattle and lean hog prices, click here.

For more on coffee and sugar price prospects, click here.