Some revival in grain futures is on the way, ABN Amro said, even as it cut its estimate for values near-term – saying that these low prices were having an impact in quelling growth in supplies.
Some stabilisation in grain prices this year could be a sign that the drop in grain prices could – after nearly four years – be running out of steam.
“The fact that prices have been moving sideways for the last few weeks would seem to indicate that prices have now bottomed out,” said ABN Amro analyst Frank Rijkers.
The flattening comes amid some signs that weak prices may be having an effect in curtailing farmers’ enthusiasm for maximising production, with the bank highlighting an International Grains Council forecast for a drop of 1.4% in world wheat sowings in 2016-17.
“After three years of over-production, we are now seeing signs of a turnaround,” Mr Rijkers said.
“Low prices… mean poor returns for farmers,” who are “consequently starting to change their cropping plans, with the result that less wheat is forecast to come onto the market”.
‘Upward pressure on prices’
Meanwhile, in corn, the bank noted that not all countries have enjoyed strong harvests, with South Africa gripped in a drought which “is triggering increasing fears of a food crisis”, and dryness denting Indian and European Union results too.
“Reports of lower yields around the world are expected to translate into higher prices during 2016,” Mr Rijkers said, flagging the potential too for support to values from the knock-on effects of an expected recovery in oil prices.
“Upward pressure on prices will be supported by a forecast rise in the oil price, which will boost demand for bioethanol,” which is made largely from corn.
In soybeans too, “while production levels have been rising substantially, demand for soybeans has also increased sharply,” he said, noting the increasing growth in Chinese imports of the oilseed, which state-owned trader Cofco said could hit 83m tonnes in 2015-16, 2.5m tonnes above the US Department of Agriculture forecast.
Price forecasts
ABN, flagging the extent of crop inventories for now, cut its forecast for prices near-term, with the estimate for average Chicago wheat futures prices in the April-to-June quarter downgraded by $0.30 a bushel to $5.00 a bushel, and for corn by $0.20 to $3.95 a bushel.
The forecast for average Paris wheat futures during the quarter was trimmed by E0.15 a tonne to E170 a tonne.
However, these forecasts remain above the levels that investors are factoring in, with Chicago May wheat futures, for example, trading at $4.62 ½ a bushel on Friday, and corn for May at $3.58 a bushel.
And ABN stuck by expectations for year-end prices of $5.00 a bushel for wheat in Chicago, and of E185 a tonne in Paris, and of E4.15 a bushel for Chicago wheat and $9.00 a bushel for soybeans, which are also more optimistic than the market is pricing in.
The estimates come amid some revival in futures, attributed to short-covering fuelled by weather worries for crops in some areas, including Morocco, India and the US Plains.
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