January 18, 2012

SEB analysts said Tuesday (Jan 17) grain prices trend will drop in 2012 due to crop's conditions likely to normalise after several years of unusual weather conditions and bearish macroeconomic factors.

However, the Swedish bank added it was slightly less bearish on prospects for the first few months of the year as the market remains sensitive and could easily over react, especially given seasonally quiet sector activity and an exceptionally low corn inventory, which unsettles the entire complex.

Recent droughts in the US and South America are typical manifestations of the La Nina weather phenomenon, SEB said, with any related disturbances in the latter likely to be the focus in coming months, potentially supporting prices. This is because only dormant winter wheat is in the ground in the northern hemisphere at the moment.

Nevertheless, the bank said that latest forecasts suggest La Nina's effects are currently peaking and will fade during spring, with conditions normalising as early as March and no later than May. The current event is categorised as weak to moderate, but most models are indicating a weak event.

Of such soft commodities, the bank said cotton has the most bullish prospects in 2012, with low inventories and strong competition for acreage. Demand is still depressed after the 2008 financial crisis, SEB said, leaving a market sensitive to its eventual recovery, the first sign of which will probably be an upturn in China.