Revivals in corn and raw sugar futures have further to run, according to Rabobank, which also saw Brazilian dryness providing support for robusta coffee – but less so for arabica bean prices.
The bank nudged higher its forecasts for Chicago corn futures by up to $0.20 a bushel, seeing them hit $4.20 a bushel in the April-to-June quarter of 2016.
That is above the $3.96 ѕ a bushel that the May contract was trading at on Thursday.
The bank cited in part the slow farmer selling of corn which many other commentators have flagged as a factor supporting short-term values.
“With grains flowing into farmers’ silos instead of onto the market, basis levels are firm in several regions of the US, which also lends support t futures,” Rabobank said.
Separately, at Chicago broker Futures International, Terry Reilly said that “we are hearing in Illinois and Indiana that end users are paying up dearly for small purchases for corn.
“It appears producers would rather see $4.00-a-bushel futures before they sell their cash crop.”
‘More upside price risk’
However, Rabobank also flagged the potential for longer-lasting support from a US harvest which, in its expectations, will come in at yielding of 166 bushels per acre, falling short of the US Department of Agriculture expectation of 168 bushels per acre.
“This would tighten the US balance sheet by another 160m bushels [over 2015-16], or almost 20% below last year’s stock.”
And to prevent a further drop in inventories over 2016-17 would require an extra 2.5m acres of US plantings, at the expense of soybeans, an outcome that “is not yet included in the futures forward curve”, which would require relatively high corn prices to entice sowings.
“We consider late-2017 prices close to $4 a bushel as an opportunity for consumers to hedge some of their needs.”
And, shorter-term, “we feel there is more upside price risk early next year,” with the bank also flagging the reliance of ideas of good global corn supplies on large, and uncertain, estimates for Chinese inventories.
‘Significant wave of short-covering’
For New York-traded raw sugar futures, the bank hiked its price forecasts by up to 2.5 cents a pound, citing “repositioning in the market, as speculators respond to tightening fundamentals.
“The somewhat delayed realisation that sub-optimal weather has tangible affected production potential in Brazil and India… coincided with a firmer Brazilian real, a weaker dollar, and triggered a significant wave of short-covering.”
The bank forecast futures averaging 14.50 cents a pound in the April-to-June quarter, well ahead of the 14.14 cents a pound that May futures were trading at.
And futures will average about 15.0 cents a pound in the last quarter of 2016, compared with the 13.92 cents a pound that December futures are pricing in.
Futures have, on a spot contract basis, not touched 15 cents a pound since February.
‘Well below potential’
Rabobank showed optimism on prospects for London-traded robusta coffee futures too, despite a downgrade of $40 a tonne to $1,720 a tonne in its forecast for prices in the first three months of 2016.
That is still well above the $1,589 a tonne at which March 2016 futures were trading at in on Thursday.
The bank, highlighting Brazilian dryness which has been a big factor in the arabica coffee market too, said that it was actually “most concerned” over prospects for robusta-growing areas, where there has been “very little rain” since the main flowering period around July and August.
“Although about 85% of the farms are irrigated, we would expect a crop well below the potential, given that no irrigation system can fully compensate for the lack of rainfall.”
While Rabobank nudged higher its forecast for New York arabica prices by up to 4 cents a pound, the increase, to 131 cents a pound in the January-to-March quarter, and 133 cents a pound for the following quarter, were not far above the futures curve.
And the estimates further ahead were a little below levels investors are betting on, with the bank citing the incentive for forward sales being offered by the current premium of further-ahead contracts to spot futures.
“The incentive to sell forward coffee has never been so strong,” the bank said, saying that the curve implied a spot price of 699 real per bag, rising to 837 real per bag in a year’s time.
“The difference, ie incentive to sell forward, is 137 real per bag, and it has never been so high before,” a factor which explains why Brazilian farmers are “perceived” to be selling their latest harvest “rather slowly”.
(Source – http://www.agrimoney.com/news/rallies-in-corn-sugar-have-further-to-run-says-rabobank–8923.html)