Grain investors should brace for another year of weak prices, Commerzbank said, seeing little chance of corn returning above $4 a bushel, and cutting its forecast for soybean values to levels well below the futures curve.
The bank cut its price forecasts for all three major Chicago contracts – corn, soybeans and wheat – although it was less downbeat on Paris lots, a reflection of the relative weakness of the dollar.
On corn, Commerzbank downgraded its quarterly price forecasts by up to $0.70 a bushel, ditching expectations of prices holding above $4.00 a bushel in 2016.
Indeed, the forecast for the year average was dropped by $0.50 a bushel to $3.90 a bushel, with the estimate for prices in the October-to-December quarter of next year slashed to $3.80 a bushel.
The forecast reflects – besides a “high… availability internationally” of corn – a stronger dollar which has left the US facing a “currency-induced deterioration of its competitiveness leading to weak export demand”, Commerzbank said.
Furthermore, the bank noted expectations from the likes of Informa Economics and fertilizer group CF Industries of a recovery in US corn sowings next year, as a phase of farmers switching acreage to soybeans goes into reverse.
“If this should occur, there ought to be no scarcity of corn in the future either. This dampens the price outlook.”
The bank acknowledged the threat of the current El Nino being followed sharply by a La Nina weather pattern, which has a history of causing dry and hot weather in the Midwest unfavourable for corn yields.
“But it is still extremely uncertain whether [La Nina] will really come and, if so, when and with what consequences,” the bank said, adding that it was ignoring this eventuality for now.
‘Little upside potential’
The weaker forecast for corn also weakened price prospects for wheat, a rival for many uses, such as livestock feed, and for which Commerzbank trimmed its quarterly price forecasts for Chicago futures next year by up to $0.30 a bushel.
“We see little upside potential for the wheat price over the next few months, especially since the tightening on the corn market, which we had expected to support the wheat price, will probably remain limited.”
Futures were seen ending 2016 at some $5.20 a bushel, below a previous estimate of $5.50 a bushel, with the bank also noting “ample” global supplies of wheat, with the prospect of wheat in the European Union rising “sharply” thanks to a record harvest and declining exports.
Furthermore, on 2016 prospects, the bank said that some warnings over damage to Russia’s production outlook from dryness had been “too pessimistic, given especially that rainfall has recently improved the situation”.
‘Relaxed supply situation’
However, the bank was most downbeat in its forecasts for soybean futures, cutting its quarterly price outlooks by up to $1.00 a bushel, and to levels comfortably beneath those that investors are factoring in.
The forecast for average prices in the July-to-September quarter of next year, for instance, was cut to $8.75 a bushel, below the $9.18 a bushel that August 2016 futures were trading at on Monday.
The bank cited world stocks set to grow this season “from their already record level”, and with the prospect of farmer selling in Argentina, following the election of a more agriculture-friendly president, only to boost supplies for sale.
“The global supply of soybeans should remain plentiful and easily satisfy still-rising demand.
“We do not expect a significant rise in soybean prices for the time being, given the relaxed supply situation on the soybean market and the lack of tailwinds from the grain markets.”
Rapeseed vs soybeans
But elsewhere in the oilseeds complex, the bank was less downbeat on rapeseed futures, holding with an expectation of prices averaging E385 a tonne in Paris next year, up some E15 a tonne year on year.
Futures were forecast averaging E390 a tonne in the October-to-December quarter, ahead of the E369.50 a tonne November 2016 futures were trading at on Monday.
“The fact that a [world production] deficit is now expected for 2015-16 after a roughly balanced year in 2014-15 has resulted in the rapeseed price clearly outperforming the US soybean price in 2015,” Commerzbank said.
“We expect rapeseed to be able to maintain this advantage, given the tighter supply situation,” with sowings in the European Union, the top producer and importer, for the 2016 harvest seen holding at three-year slows, and Ukraine seedings slumping by some 30%.
The estimate for Paris wheat futures in 2016 was trimmed by E5 a tonne to E185 a tonne, with values seen gaining some support from softness in the euro.
A forecast of prices averaging E190 a tonne in the last three months of next year was in line with the level that the December futures contract was trading at.