February 8, 2011

 

Chicago wheat, soy forecast to increase

 

 

Chicago crops prices are forecast to climb, with wheat ending the year above US$9 a bushel and soy at almost US$16 a bushel, according to analysts at Societe Generale (SocGen).

 

The investment bank, publishing its first farm commodity supply and demand forecasts for 2011-12, said that supplies should remain tight enough to keep the whole grains complex "at a high level until the end of the year".

 

With world output of the three flagship crops set to exceed production by a "somewhat limited" 16 million tonnes, the bank foresaw "very limited risks of a price collapse in which grains would return to their already high level of pre-summer 2010".

 

"The strong production rebound that is likely in 2011-2012 will not be strong enough to restore a fully adequate level of supply," SocGen analyst Emmanuel Jayet said.

 

"Therefore prices will hover around their current extremely high level."

 

However, Jayet was particularly bullish over prices of soy, for which it forecast world production falling short of demand for a second succession season in 2011-12, with US farmers widely expected to prioritise corn over the oilseed in their sowing plans.

 

American growers are the biggest producers of both crops.

 

Soy stocks-to-use ratio - a benchmark indicator of a crop's tightness, and therefore of the price it can command will drop to a 13-year low of 18.5% on a world basis, from 22.6% in the current season.

 

"The US market, already extremely tight this season, will tighten further," he said, lifting by nearly US$3 to US$15.80 a bushel his forecast for the average price of Chicago's nearby soy contract in the last quarter of 2011.

 

For wheat, SocGen hiked its fourth-quarter price forecast to US$9.50 a bushel, from GBP7.26 (US$11.72) a bushel, forecasting a small deficit in output in 2011-12 despite better harvests in the European Union and, especially, Russia, where drought send production slumping last season.

 

The grain's stocks-to-use ratio would, on a global basis, slip by 0.7 points to 25.8%, a figure Jayet acknowledged was "not tight in itself".

 

"However, the continuing trend of decreasing global stocks, the possible failure of the US harvest, the poor crop prospects of the Middle East and the possibility of China importing wheat all support wheat prices," he said.

 

A dearth of rain in many winter-wheat growing countries, but particularly China and the US, has raised fears of weak harvests this year.

 

Corn looked the crop best placed for output expansion, of some 60 million tonnes, sufficient for a surplus to lift world stocks to 17.7% as of the end of 2011-12.

 

Global inventories will end 2010-11 equivalent to 14.9% of consumption, SocGen forecast.

 

Despite "persistent tightness" in the grains complex, and a "tight" US corn market, "we believe this fundamental outlook does not justify a sharp decrease in price," Jayet said.

 

Even so, he forecast that corn prices will average US$5.90 a bushel in the October-to-December quarter, US$0.20 higher than previously expected.

 

SocGen added that its forecasts assumed "average" weather conditions, and a weakening of the La Nina pattern blamed for excessive rains in some countries, such as Australia and Malaysia, and unusually dry weather in others, such as Argentina.

 

They also factored in a rise of 10 million acres in US sowings, including a lift of 3.5 million acres to 91.7 million acres in corn plantings, and a 500,000-acre increase to 77.9 million acres in soy seedings.

 

The USDA is expected at its annual outlook forum on February 24-25 to give initial sowings estimates, an event which SocGen has warned, ironically, may provoke a temporary setback in crop prices.