Home > Rabobank February report: Brazilian dry spell percolates higher prices

Rabobank February report: Brazilian dry spell percolates higher prices

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The Rabobank Agri Commodity Markets Research for February reports a threat to coffee crops, sugarcane and to a lesser extent, soybean yields from persistently dry conditions across Southeast Brazil.

Meanwhile, US export sales continue to surge prior to the South American corn and soybean crops making their way onto the international market. 

Wheat

Wheat prices are expected to be bearish due to increased global surplus despite the recent rally. Report highlights for wheat include short-term logistical constraints in the US and Canada supporting CBOT wheat prices; favourable crop conditions in the EU and Black Sea region capping new crop rallies; and robust Chinese demand crucial for price support at current levels. 

Corn

Outlook for corn remains neutral to slightly bearish, with support from strong US export sales to be offset by lower cash bids as grain flows increase with improved weather. However, dry conditions in Brazil are threatening the winter corn crop, which accounts for over 50 per cent of the country’s production.

Soybeans

Based on South American production, soybeans has a bearish outlook; however, there is support provided by strong demand. Production in Brazil and Argentina is poised to increase by 10 per cent YOY despite weather concerns. However, logistical issues and slow farmer selling will delay any major adjustment into late Q2. Sustained Chinese purchases and current US market tightness will provide support.

Palm Oil

Supportive palm oil price outlook is maintained with lower stock levels to support palm price at current levels in the near term. However, there is risk of demand erosion due to historical low spread with competing vegetable oils.

Sugar

Sugar prices are supported by the Brazilian drought, while exportable supplies will limit the upside. Persistent rainfall deficit across the Centre South will drive sugar prices to 2014 highs; global stocks-to-consumption ratio remains at a relatively high level, with a narrow trading range expected to persist.

Coffee

Weather risk drives Arabica coffee price to a 15-month high but a downside correction is due, according to the Rabobank report. Dry conditions across the Centre South will curb quality and quantity of this crop and the next crop. While speculators build the longest net position in over 2.5 years across ICE Arabica, old crop Vietnamese sales will pressure Robusta prices. 

Cotton

Old crop cotton will be supported by ‘tight’ US stocks, but bearish outlook is maintained for new crop prices as US acreage rises. Old crop/new crop inverse widens to 10 USc/lb, and bearish new crop outlook is expected on increased global production and uncertain Chinese cotton policy. 

Soymeal & Oil

Near-term price outlook for soymeal is steady, but shifts lower in Q4 2014. Bearish longer-term price outlook for soy oil is maintained despite recent strength. Report highlights include soymeal futures supported by solid US domestic use due to strong livestock prices; 2013/14 US soymeal exports tracking near the record pace of the 2009/10 crop year; and global vegetable oil stocks remaining at or near record levels.


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