January 18, 2012

 

 

Following the steps of Goldman Sachs, Credit Suisse reduced forecasts for CBOT grain prices, warning farmers of a return to US$5-a-bushel corn.

 

Credit Suisse cut up to US$1.05 a bushel from forecasts for Chicago corn prices, forecasting flat US use of the grain in ethanol production, which takes around 40% of the domestic crop, and by livestock farmers.

 

Indeed, the US ethanol industry looks set for lower exports, given the declining price of sugar, which will prompt some Brazilian mills to switch to turning their cane into the biofuel rather than sweeteners.

 

"Absent another supply disruption," such as a further deterioration in Argentina's unduly dry weather, "we expect corn prices to drift sideways at around their current level" for now, before easing to average US$5.75 a bushel in the last half of 2012, and with further declines thereafter.

 

The bank cut by US$0.50 a bushel, to US$5 a bushel, its long-term forecast for corn prices.

 

Credit Suisse slashed by up to US$2 a bushel its forecast for Chicago soy futures, noting negative processing margins in China, the top importer of the oilseed, "which would translate into bearish conditions for soys".

 

Furthermore, US output of soyoil should continue to decline despite the boost provided by the lift to one billion gallons this year, from 800 million gallons in 2011, in the mandate for biodiesel, which is usually soyoil based in America.

 

The rising call for biodiesel "seems insufficient to turn the tide against the decreasing trend in US soyoil production", the bank said.

 

And it trimmed its forecasts for wheat futures too, citing relatively plentiful world supplies, and the lower estimate for corn prices.

 

The prices of the two grains have been closely correlated thanks to the unusually tight corn supplies, prompting elevated corn values which have prompted many users to switch to feed wheat.

 

The price downgrades follow cuts last week by Goldman Sachs to its forecasts for corn, soy and wheat futures, after a key US report revealed higher inventories of the major crops than had been thought.

 

However, Credit Suisse's forecasts paint a bleaker picture in the near-term, with its price estimates largely below those currently factored in by the market.

 

Goldman placed its corn and soy prices forecasts above the futures curve.

 

And other banks too came in with a more bullish outlook for prices of some crops, with Standard Chartered analyst Abah Ofon on Tuesday (Jan 17) noting "upside risk" to Chicago soy futures, restating a target of US$13.60 a bushel.

 

"We expect the current market bearishness to be transitory, as demand in Asian remains strong and output risks may yet crystallise," Mr Ofon said.

 

In Singapore, Phillip Futures analyst Lynette Tan flagged the potential for a dollar softness to re-emerge, saying that "weaker US fundamentals relating to political stress and fragile economic growth may return later in the year".

 

Dollar weakness improves the affordability of dollar-denominated exports, including raw materials.

 

Corn prices may receive a boost too from America's forthcoming "battle for acres", as farmers decide on which crops to plant, largely on the basis of prospective returns.

 

"We feel that there is still a strong likelihood for corn to re-enter a period of sustained bullishness that may play out more going into the US planting season in the first half of the year," she said.