Home > Rabobank Agri Commodity Markets Research April 2015: Impact of the devalued Brazilian real

Rabobank Agri Commodity Markets Research April 2015: Impact of the devalued Brazilian real

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The April edition of the Rabobank Agri Commodity Markets Research examines the impact of the devalued Brazilian currency on soft commodities.

The Brazilian real depreciated from 2 in early 2013 to 3.3 (vs USD) in mid-March 2015, appreciating to 3 in April, which exerted upward pressure on soft commodities while grains trended lower on favourable US weather and planting prospects.


Rabobank has revised its wheat price forecast lower on improving crop conditions in the US and slowing demand US export, which have turned the markets bearish in recent weeks. The wheat market is expected to tighten going into 2015/16. Soil moisture across Europe and Ukraine is currently good, while some of the Russian regions could use some more rain. Ukrainian 2015 wheat crop is forecast at 21 million tonnes to 23 million tonnes, down from 24.2 million tonnes last year while the EU wheat crop (including durum) is seen at 147 million tonnes, well below the 155 million tonnes one year earlier. Russian output is projected to reach 53 million tonnes to 55 million tonnes, down from last year's 59 million tonnes.


Price forecast for corn remains neutral to slightly bullish with a dip during the 2015 US harvest. Rabobank maintains their long held projection that a balance-sheet neutral 89.2 million acres of corn will be planted in 2015. Total US corn stocks were also on the high side of trade expectations in the March report. Increases in the Brazilian crop are applying some downward pressure to new and old crop prices. Ukrainian production should prove supportive for prices. While the bump in imports to China is likely, dryness and challenges with inputs for the 2015 crop make Ukrainian production volatile. China is expected to import corn from Ukraine.


The USDA Prospective Plantings report projected 2015 US planted soybean acres at 84.6 million acres, up 1% from last year. Though well within the range of pre-report estimates of 83.1 million to 88.0 million acres and still a record for plantings, this projection was well below the average trade estimate of 85.9 million. Soybean futures have held up better than expected as the demand side has been strong. While US exports will slow significantly as soybean exports move to South America, crush is expected to remain solid given that margins have rebounded above USD 2.00/bushel. Even with lower planted acres than expected, the 2015/16 US soybean balance sheet is forecast to show the highest ending stocks in nearly a decade at just below 500 million bushels as per Rabobank projections.

Soymeal and soy oil

Soymeal comes under further pressure following a decline in US basis offers; as a result, soy oil gains a greater crush share. While price forecast has been lowered for soymeal, soy oil price forecast remains unchanged. The changing market dynamics between soy oil and soymeal has seen soy oil's share of the crush declining since 2011 and reaching a calculated low of 24.5% in September 2014, mainly due to the soaring price of soymeal. However, declining soymeal prices are again changing the trend with soy oil expected to gain a larger share of the crush. Rabobank has made minor downward adjustments to the soymeal price forecast. Record crops in South America and prospects for soybean stock building in the US will keep downward pressure on prices, particularly for soymeal.


Sugar futures will likely remain under pressure through Q2, as larger-than-expected crops from India and Thailand buffer the price impact of a longer Brazilian intercrop period and softer currency influences. A weaker US dollar through much of April coupled with more favourable policy implementations in Brazil have seen the Brazilian real appreciate towards 3 against the US dollar – a short-term correction ahead of a sustained depreciation to 3.5 in the next 12 months. The wet start to the Centre/South cane harvest is considered supportive of cane production through the harvest. At this early stage, cane production should reach 575 million tonnes, or even higher depending on improving weather. Australian cane production is expected to reach some 34 million tonnes, the most since 2007, with 4.6 million to 4.7 million tonnes of raw sugar production.


Coffee prices are expected to recover, with the supply/demand balance reflecting an increased 6.4 million bag deficit in 2014-15 and a further 1.5 million bag deficit in 2015-16. The coffee market will continue to be volatile due to the wide range of crop estimates for 2015-16. High exports from Brazil and Honduras will meet immediate requirements despite global deficit. Prospects for a record crop in Vietnam in 2015-16 and Brazil in 2016-17 are keeping futures price under pressure.


Rabobank maintains a neutral outlook on old crop cotton and is bullish on the new crop as worldwide plantings show contraction. US Certified Stocks increased fourfold through April but remain seasonally low. World cotton consumption is forecast to exceed production in 2015-16, the first time in six seasons. This will drive ending stocks down 7% YOY in 2015-16 from the record high of 108 million bales. The wet start to US plantings is expected to support yield.

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