Home > Weather, grain stocks and geopolitical tensions contribute to bearish bias

Weather, grain stocks and geopolitical tensions contribute to bearish bias

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Agribusiness banking specialist Rabobank observes that several factors from adverse weather and tight US grain stocks to geopolitical tensions in the Ukraine are contributing to volatile agri commodity markets.

Heightened volatility in the coming months cannot be ruled out as these weather and geopolitical uncertainties are likely to persist or even exacerbate, with the probable development of El Niño and increasing instability driven by BRIC states.

Wheat

A bearish view is being held on wheat markets throughout the 2014/15 season despite recent rally. CBOT wheat prices are likely to be range bound through most of the spring. Rising global stocks will cap prices on the upside near USD 7.25/bu while the risk of depleting US HRW stocks support a floor near USD 680/bu.

Corn

The transition between comparatively bearish old crop fundamentals and risk-laden new crop fundamentals introduces significant uncertainty to the corn market. Cash sales of old crop corn will limit rallies, while reduced acres will make the market more sensitive to weather risk during planting and pollination.

Soybeans

Strong CBOT soybean prices are anticipated until the new US crop, despite bearish global fundamentals. High crushing margins will drive continued demand despite tightness in the US market. While the South American soy crop has started to flow, the US will not be able to import enough to ease tight domestic stocks. Chinese cancellations will provide a bearish influence.

Soymeal & Soy Oil

Soymeal prices will remain high going into Q4 before easing as new product becomes available. Soy oil prices are expected to maintain a bearish trend. Solid crush margins are fuelling demand for soybeans and support soymeal prices. Strong global soymeal demand is driving export programmes, but soy oil prices remain the laggard as stocks increase.

Sugar

Weather risk continues to support raw sugar futures but supply side pressures will continue to limit the upside. Heightened risk of El Niño will be supportive of prices. Centre/South harvest will boost the already plentiful exportable raw sugar stocks, pressuring prices. BRL is holding firm, but depreciation is forecast.

Coffee

Coffee prices will remain elevated as production uncertainty persists. The Brazilian harvest is underway but a final production estimate is still some months off. Speculators will continue to drive price swings as weather risk intensifies. Arabica vs Robusta premium will remain wide.

Cotton

Old crop cotton futures will continue trading sideways on tight US stocks. There is risk of sell-off prior to July expiry as the old crop/new crop inverse approaches. Weather concerns are supporting new crop futures. However, a bearish view is maintained for new crop cotton futures on increasing acreage and uncertain demand outlook.

Palm Oil

Palm oil price outlook is maintained but weather risk is also on the rise. Dry weather conditions in Indonesia and Malaysia are supportive of near-term palm oil prices. There is increased spread to encourage demand for palm oil in the coming months. An El Niño occurrence could lead to further strengthening of prices.

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