Australia & New Zealand Bank cut its forecast for corn and wheat futures to levels below the futures curve, citing pressure from the northern hemisphere harvest, while cautioning that cotton prices will “underperform” too.
The bank forecast that Chicago corn futures will prove one of the worst performers in commodities over the next three months, dropping 9% to average $3.50 a bushel in the October-to-December period.
Only WTI crude oil, expected to drop 10% over the next three months amid a continuing “surplus position” in supplies, and gold, forecast to slump by 13%, will perform worse.
And ANZ forecast wheat prices also underperforming, seeing Chicago futures averaging $4.70 a bushel in the October-to-December period, down $0.40 a bushel from its previous forecast, and below the $5.00 ½ a bushel December futures were pricing in on Friday.
“Global grain prices are set to remain subdued in the quarter ahead despite already languishing around five-year lows,” the bank said.
It highlighted pressure from supplies from the northern hemisphere harvest “hitting the market”, a factor which has proved particularly evident in the export markets, in which French, Russian and Ukrainian supplies in particular have been discounted to win orders, after strong crops.
ANZ also highlighted the “confidence is improving” over the size of the US corn and soybean harvests.
After disappointment from the early harvest, in the southern US, the broad consensus appears to be of decent corn yields in the western Corn Belt offsetting below-par results in the east, while some brokers say soybean results are beating expectations.
China corn reforms
The bank also noted the prospect of a dent to grain markets broadly from a cut by China to its minimum price paid for corn, which would, in undercutting domestic values, reduce the arbitrage to users of importing cheaper foreign feed supplies.
However, it cited in particular the threat to Australia, a large grain exporter to China, and where wheat prices are already “only marginally above breakeven for farms carrying moderate debts”.
China has cut its minimum corn price for buying into state reserves for the first time in eight years, by 11% to 2,000 yuan ($314) a tonne, the equivalent of a little under $8.00 a bushel, although the reduction was termed by the International Grains Council as less severe than many investors had expected.
The council said in a report overnight: “Corn prices in the main southern consuming areas [of China] are still much higher than imported feed materials, and the policy changes alone might not therefore spark much of an increase” in the use of domestic corn needed to erode huge domestic stockpiles.
However, local reports “suggest that authorities are planning deeper reforms, possibly for the following year”, the IGC added.
‘In overbought territory’
On soft commodities, ANZ stuck by downbeat forecasts for sugar futures, seeing New York prices at 10 cents a pound in a year’s time, well below the 12.13 cents a pound that investors were factoring in on Friday for October 2016 futures.
And for cotton, the bank foresaw prices, as measured by the Cotlook A index of physical values, see a gentle decline to 63 cents a pound by the end of 2016, from a level of 66.40 cents a pound on Thursday.
The “persistent” net long of speculators in New York cotton futures and options “suggest the market is in overbought territory”, the bank said.
Furthermore, the “inability” of cotton prices to sustain a rally after the USDA last month cut its forecast for domestic output “raises questions as to the strength of buyers” heading into what is a “seasonally-weak period” for futures.
(Source – http://www.agrimoney.com/news/anz-downbeat-on-corn-cotton-wheat-price-prospects–8812.html)