April 6, 2012

 

Commerzbank maintains global wheat price support

 

 

Commerzbank provided support to wheat prices, even as valued tumbled almost 3%, saying that the risk of frost to US crops, and drought to Europe's, should lift the market.

 

The bank acknowledged expectations of ample world wheat supplies, as revealed by an International Grains Council report earlier this week, which forecast another strong world harvest this season.

 

"Whilst global demand is expected to exceed global supply by 2m tonnes in the coming crop year, a significant reduction of the very high global stocks is therefore unlikely," Commerzbank said.

 

"There is no reason to expect a scarcity of wheat."

 

Furthermore, the bank highlighted the improved condition of US winter wheat crops seen fuelling a fall in Chicago's benchmark May lot by 2.7% to US$6.40 a bushel in late deals in Chicago.

 

However, price falls would be cushioned by the risk of freeze damage, which poses a particular threat given the advanced development of the crop.

 

"Concerns remain about a late frost, which could damage the plants all the more," Commerzbank said.

 

"The uncertainty regarding potential frost damage," as well as drought in Europe and ideas of grain users replacing expensive corn with wheat "will likely prove supportive for prices. "Much of the newsflow surrounding higher supplies has probably already been priced in, which is why we see little downside potential for prices."

 

Chicago wheat will average US$7.00 a bushel in the last three months of 2012, above the level futures are pricing in.

 

In Europe, "milling wheat is likely to trade above E200 per tonne throughout the entire year."

 

The bank foresaw gains ahead in December corn futures too, predicting Chicago prices of the grain averaging US$6.20 a bushel in the final quarter of the year, some 14% above the level futures are pricing in.

 

While US data has highlighted that growers intend to sow their highest corn acreage in 75 years, "it is by no means certain that the current crop estimates will materialise, as a look back at last year's US crop shows", Commerzbank said.

 

"We do not anticipate any sharp decrease in price."

 

However, prospects for soy looked less rosy than futures markets suggest, given the potential still for growers to switch to sowing the oilseed rather than corn, and for strong South American harvests next year.

 

"It is possible that the record figure of 264.3 million tonnes produced in the 2010-11 crop year could be achieved once again.

 

"This outlook is likely to weigh on soybean prices in the second half of the year."