Commodity Spotlight Agriculturals

Transcription

1 Commodity Research Commodity Spotlight Commodity Spotlight Agriculturals Grains, oilseeds, cotton: Running out of breath? Four years of surpluses still exert pressure on wheat prices. And all the signs have so far pointed to another high global wheat harvest in 217/18 if the expectation that frost damage in the northern hemisphere will be moderate at most is confirmed. In corn, too, the supply situation remains relaxed, though US farmers may react to lower prices with notable reductions in acreage, whereas the soybean acreage will probably be expanded. A higher supply of oil seeds overall should depress prices. Over the last few years, China has made some changes to its agricultural policy. In a box, we discuss important changes in the grains sector. Wheat: In 216, the USA, the Black Sea countries and Canada recorded high in some cases record-high wheat harvests, more than offsetting the poor results in the EU (chart 2). In addition, Australian wheat harvests also marked record highs recently and Argentinian production increased, driven by politics and the weather. Global wheat production in 216/17 thus also rose to a new record of 73 million tons according to USDA data. Consequently, wheat prices in Chicago mainly hovered around 4 US cents a bushel in the final months of 216, which is the lowest level in ten years. However, in January, wheat prices advanced temporarily to a 6-month high of around 43 US cents per bushel. Apart from technical effects in the context of index-driven shifts at the start of the year, it was above all the deterioration in winter wheat crop condition compared to last year in the USA that provided a boost. As a result, crop yields, which soared to a new record in 216, are likely to decline. Together with the fact that the USDA has now confirmed that winter wheat acreage has not been that small in over 1 years, this is weighing on the next US wheat crop outlook (chart 3). By contrast, EU crops stand a good chance of improving, after being so disappointing in 216. Based on currently available data and estimates, winter wheat acreage in the EU is likely to remain similar to last year. As regards France, the Ministry of Agriculture reported a minor increase in acreage. Together with a massive rise in yields from ihe disastrous level the year before, this should increase the country s soft wheat production by approximately one third according to Strategie Grains. In Germany, production is expected to grow by 1 million tons to.7 million tons. Although some downward revision were made for some Eastern European crops after the cold spell, total EU production is expected to rise by 6% to 144 million tons of soft wheat however, this would still be below the 3-year average. 1 February 217 Commerzbank Forecasts 217 Grains/Oilseeds/Cotton Q1 Q2 Q3 Wheat* (CBOT) Wheat^ (Liffe Paris) Corn* (CBOT) Corn^ (Liffe Paris) Soybean* (CBOT) Rapeseed^ (Paris) Cotton ** Softs Coffee (Arabica)** (Robusta)*** Cocoa (Liffe London) Sugar** # *US-Cents per bushel **US-Cents per pound ***USD per ton ^EUR per ton GBP per ton CHART 1: Price development of wheat, corn, soybeans and cotton Jan 21 = Wheat, LS Corn, LS Soybeans, LS Cotton, RS For important disclosure information please see page 1. research.commerzbank.com / Bloomberg: CBKR / Research APP available Head of Commodity Research Eugen Weinberg eugen.weinberg@commerzbank.com Analyst Carsten Fritsch carsten.fritsch@commerzbank.com Analyst Barbara Lambrecht barbara.lambrecht@commerzbank.com Analyst Michaela Kuhl michaela.kuhl@commerzbank.com Analyst Daniel Briesemann daniel.briesemann@commerzbank.com

2 In addition to that, there is growing concern about potential droughts, after December has never been so dry in France since the 19s and Germany also reported below-average rainfall. The EU Commission s forecast unit MARS describes the damage caused so far by winter weather for the EU as a whole as relatively minor, despite some damage from frost, especially in parts of Eastern Europe. Good prospects in Black Sea region Four years of surpluses on wheat market Prospect of higher harvest has yet to weigh on EU price EU wheat exports in whole 216/17 season below previous year s levels So far, there are also no signs of major frost damage in the Black Sea region because it was either not too cold or because many fields in the affected regions were protected under a sufficiently thick snow cover before the cold set in. More details will be known in spring. So far, however, there is nothing to argue against another high harvest in Russia, especially given an increase in winter grain acreage and hence also an expansion of wheat acreage. SovEcon analysts are expecting 7 million tons of wheat, which would only be slightly lower than last year s record level. Following four years of surpluses on the wheat market with the USDA and IGC currently also expecting a 13 and 14 million ton surplus in 216/17, respectively a shortage in wheat is thus not anticipated. But we may see a growing awareness that a further unlimited build-up of stocks cannot be expected. If low prices were to weigh on acreage in other regions as well with the IGC currently only envisaging marginally lower wheat acreage in 217/18 (-.1%), though and if poor weather conditions were to push production down massively, a deficit could easily be possible. Some observers expect to see a deficit as soon as in 217/18, implying that inventories would have to be reduced. Short-term market players have been betting on lower prices for around 1½ years and are still doing so. However, the net short position amounts to around 1 thousand contracts again; in the last few months, it had even been higher. Our forecast for US wheat prices in Q4 217 is 43 US cents a bushel. EU wheat prices have also advanced in recent months, recently exceeding the 17 EUR per ton threshold for the first time since summer 216. However, given the higher harvest outlook in the EU and the subdued US harvest outlook, the price differential which, in previous months, had shifted in favour of EU wheat has narrowed a bit in recent weeks. Despite a poor harvest, EU wheat exports were higher until a few weeks ago than in the prior season, thanks in part to the weaker euro versus the dollar and the Russian rouble. However, since the start of the year, the euro has been making gains on the dollar once more, and this together with lower stocks is hitting exports. During the season overall, therefore, exports will no doubt be down year on year. The USDA envisages a drop of over 9 million tons. There should be virtually no headwinds from the euro, though. Instead, our currency experts expect the euro to weaken again versus the US dollar. Our forecast for wheat prices in Paris in Q4 217 is 17 EUR a ton. CHART 2: Wheat: Mostly higher production Wheat crop of important producer countries, in million tons CHART 3: Wheat: US acreage at 1-year low US winter wheat acreage, in million acres USA Russia India China EU Canada Australia Argentina Kazakhstan Ukraine /16 216/ Source: USDA, Commerzbank Research Source: USDA, Commerzbank Research 2 1 February 217

3 216/17 with surplus on global corn market Record-high harvests in USA, Brazil and Argentina Reduction of US corn acreage expected for 217/18 Uncertainty about US policy Corn: The corn price is also slowly working its way up. However, at around 36 US cents a bushel, it is only gradually returning to levels that long prevailed before the rise and fall in the middle of 216. Here, too, high availability is exerting downwards pressure, because after a balanced market in 21/16 the year 216/17 is expected to close with a surplus of 11 million tons (USDA) or 17 million tons (IGC). Global stocks would thus climb to a new record (chart 4). This increase is essentially supported by a record-high US harvest, although the latter is seen to come in slightly lower than in the previous month according to the USDA s January forecasts. The US harvest, and record quantities expected for Argentina and Brazil where sowing is now underway for the second, bigger (winter) harvest, which will be brought in between May and September will more than offset another weak EU harvest. For 217/18, estimates are already coming in as to the extent to which the deteriorating price relation to other grains and oil seeds will probably lead to reductions of the US corn acreage for the next harvest (chart ). In its ten-year forecasts, the USDA in December pencilled in 9 million acres. This would mean a decline by 4. million acres compared to the last sowing and corresponds with farmer s plans according to a survey by Farm Futures magazine. Analysts of Informa Economics expect only a marginally higher acreage. In this case a fall in production in the neighbourhood of 2 million tons in 217/18 seems indeed possible for acreage reasons alone. It is also questionable that yields will again post record highs like they did last harvest. However, this need not cause the global balance to slide into a deficit. Given the high stocks, corn supply will not become tight, and this makes it more difficult for the price to recover significantly. On the other hand, uncertainty about the actual policy of the new US president will probably linger for some time yet, whether regarding his (renewable) energy policy or his trade policy for example, with NAFTA, trade with Mexico, the biggest buyer of US corn, is up for debate. Nonetheless, in the last reporting week short-term oriented market participants mostly bet on rising corn prices for the first time since summer 216. For Q4 217, we forecast a US corn price of 38 US cents a bushel, and we see the price in Paris at 17 EUR a ton. EU prices are unlikely to increase significantly, especially since production is expected to make a good recovery in the EU, provided that normal weather conditions prevail. Relaxed supply situation also in soybeans Soybeans and rapeseed: CHART 4: Corn: Stocks to increase on surplus in 216/17 Global corn stocks, in million tons and % of use In soybeans, too, supply is anything but tight. After having risen sharply in the first months of the year, prices plummeted correspondingly in 216 when it became clear that the USA would see a record harvest for the third consecutive year and the global balance would not slide into a deficit as initially feared. At that time, a record-high harvest of more than 1 million tons was already priced in also for Brazil, and this now obviously seems to come true (chart 6). However, the soybean price has been rising again since last autumn, closing the year with a plus of 1%. The price has mostly been moving above the mark of 1, US cents a bushel for two months and is currently trading at 1,3 US cents a bushel. The market seems to have coped with news of record harvests especially with the USDA s January estimates indicating that the US record CHART : Corn: Probably smaller US acreage in 217 US acreage, in million acres, 217 intentions (Farm Futures) corn ending stocks in million tons, left stocks-to-use ratio in %, right Corn Soybeans Source: USDA, Commerzbank Research Source: USDA, Farm Futures, Commerzbank Research 1 February 217 3

4 Box China: The agricultural sector in China is still very important. According to OECD data, the agricultural sector contributed almost 1% to GDP in 214, in terms of employment it accounts for as much as 3%. Land is scarce in China. While about 2% of the global population live in China, the country only has 7% of water reserves and 1% of arable land. In its latest analysis of China s agricultural policies, the OECD confirmed again that prices in China are 23% higher on average than global market prices, meaning that prices are strongly distorted. In many areas, artificially inflated prices are leading to problems. There are already huge environmental problems. Environmental awareness is growing though and policies have been implemented to create relief (reversion of arable land to grassland or forest in sensitive areas, more efficient and fewer chemical fertilizers and pesticides, fines for animal breeders in the case of waste material mismanagement and obligation to reduce pig stocks in some regions). China is still pursuing the goal of virtual complete self-sufficiency for most grains. A selfsufficiency rate of 9% is the aim, although corn was taken out of the list of grains for which the target applies in 216, leaving only wheat and rice. For these grains, annual minimum prices are politically fixed, staggered by product and limited in time. If the market price is at risk of dropping below the politically fixed minimum price, the state-owned China Grain Reserves Corporation (Sinograin) buys goods at the minimum price (intervention purchases). China s wheat crop in 216 was only slightly below the record crop yield of the previous year, but crop quality suffered from very high rainfall just before the harvest. The USDA therefore now expects wheat imports of 3. million tons again. In 217, the wheat buying price in China was left at the level of the preceding two years, although global market prices have fallen sharply. Consequently, at 9. USD a bushel, the guaranteed buying price is much higher than the current global market price of around 4 USD a bushel. In the meantime, China s state reserves have expanded strongly. At the end of the 216/17 season, the USDA puts them at about 112 million tons. Also on the corn market, domestic prices of 9-1 US cents a bushel, supported by intervention prices, had created a strong incentive for production (% rise in acreage between 26 and 21). At the same time, consumption has been dampened by high prices. As the bulk of corn demand is for animal feed, corn and substitution products such as DDGs have been increasingly imported. This was all the more attractive because refining plants are mostly in the south of the country while the growing regions are more in the north, so imports were often preferable also under transport costs considerations. In 216, China changed its corn policy. Direct payments linked to current acreage are being made, and a compensation made for the difference between the market price and a target price ( deficiency payment ) but the market price is no longer being propped up. This has caused domestic prices to drop considerably (chart) and the corn acreage is expected to shrink significantly in the next few years. In China, the Ministry of Agriculture expects the corn crop in 216/17 to be about 4% lower than the year before, at 21 million tons, while imports are estimated at almost 7% lower falling to 1 million tons from a low level already. This reflects the will to reduce stocks inflated by current policy. At the moment, the warehouses still have China: Corn price China: Wheat price US cents per bushel 2 US corn price Corn price China (converted) US cents per bushel 4 US wheat price Wheat price China (converted) February 217

5 Box China (cont.) old corn stocks of deteriorating quality on account of the buying policy so far. Several provinces have therefore started to increase sales from state reserves through subsidies for processors who buy the grain. Processors have partly been ordered to take certain quantities from these stocks before they are granted import quotas for purchases on the global market. The dispute about the import of substitution products such as DDGs (for which there are no import quotas and China s share in global imports is about 8%) should probably be seen in this context. In the medium to long term, China s involvement in the global corn market is set to increase, although the OECD/FAO forecast is that China will have net imports of only about 6 million tons of corn in 2. By comparison: the EU is predicted to import a net 9 million tons then and a similar volume is projected for Egypt. Flood-induced damages in Argentina High Chinese imports Large increase in US soybean acreage expected Rapeseed likely to remain scarce despite recovery of EU production CHART 6: Soybeans: Record harvests in USA and Brazil harvest turned out somewhat lower than in the previous month and has recently focused more on news of a possible flood-induced need for cuts in Argentina. The latest estimates show a harvest of some 2-3 million tons, as against earlier assumptions of -7 million tons. The USDA is still adhering this month to its upbeat prediction of 7 million tons. On the demand side, prices have been supported by sound trading data, the last of which have been large soya bean imports by China in December. China is by far the world s biggest customer, and seems set to increase its imports further in the medium term. There will probably be a drop, however, falling the strong December imports of 9 million tons. This month, the China National Grain and Oils Information Centre is predicting a figure of 8 million tons, and lower figures of 6 and 7 million respectively for February and March. Most short-term market players are betting on prices continuing to rise, which we think unlikely. If, as expected, the area under soya bean cultivation is expanded generously, as US farmers are planning according to a Farm Futures magazine survey, taking soya beans ahead of corn for the first time since 1983, prices would no doubt suffer accordingly. Even if yields return to normal, expanding the area under cultivation by almost 7 million acres, or 8%, would allow another large US harvest. For the fourth quarter of 217, we expect a soybean price in Chicago of 9 US cents per bushel. Paris rapeseed gained some 1% over the course of 216, and is still rising this year (chart 7). It now costs 426 EUR a ton, a price last seen in early summer 213. After two years of declining EU production and the prospect of a second year of shortfall on the global rapeseed market, this is hardly surprising. In contrast with 21, when the price of rapeseed held its own in a climate of falling soybean prices, the latter have this time been a source of support. In the EU, the world s number one rapeseed producer, Stratégie Grains envisages a rapeseed cultivation area for this year s harvest slightly larger than last year s, thanks to encouraging price developments. According to Germany s Federal Statistics Office, the area in Germany is only marginally larger, since bad weather has often necessitated reploughing rapeseed fields. Oil World is also expecting a slightly larger area to be cultivated with rapeseed this spring in Canada, on account of high prices. In this case global production may recover, but rapeseed should still remain rather scarce even then. Soybean crops of important producer countries, in million tons USA Brazil Argentina 213/14 214/1 216/17 CHART 7: Rapeseed: Lastingly better price performance Rapeseed and soybean prices Rapeseed, Euronext Paris, EUR per ton, LS Soybeans, CBOT, USd per bushel, RS Source: USDA, Commerzbank Research 1 February 217

6 Palm oil market influences other oilseeds An important factor for the whole oilseed market will be when and to what extent palm oil production recovers from the long after-effects of the El Niňo drought in South-East Asia. Oil World expects strong output growth up to 218 which is bad news for competitors producing alternative vegetable oils. We therefore expect a rapeseed price in Paris in the fourth quarter of this year of 39 EUR a ton. Rapid increase in cotton price Cotton market in deficit for second time Extreme positioning harbours risks Cotton price should decline slightly Cotton: The price of cotton rose steeply as of early 216, with some fluctuations, and is still rising at the start of this year. The current price is close to 7 US cents a pound, which apart from a brief high last summer is the highest since early summer of 214. For the second season running, the global cotton market will end in 216/17 with a shortfall, despite a strong US increase in production of some 3% and production gains in other major production countries, with the exception of China (chart 8). However, in recent months the USDA and other organisations have lowered their estimates of the deficit expected, owing largely to the US harvest estimates being raised. Estimates for a deficit by both the USDA and the International Cotton Advisory Committee currently stand at 1.4 million tons. In 21/16, too, consumption exceeded current production by 3 million tons. At the end of the 216/17 season, global cotton stocks can be expected to have dropped to a five-year low owing largely to politically enforced depletion of inventories in China, whereas stocks elsewhere will have risen. None of this information is new, though, so it comes as a surprise that prices are still rising sharply. One factor may still be the scarcity of cash in India, where the government invalidated larger banknotes in early November. Over the period from October until December, producers therefore made 16% less cotton available. But this supply should come to the market once the scarcity of cash has ended. Another reason is probably the strong build-up of net long positions by short-term oriented market participants. After a sharp rise since spring 216, these reached a new record in January before declining slightly. Extreme positioning of this kind increases the scope for setbacks when the mood on the market changes. This appears quite feasible; for one thing, produce from the 216/17 harvest is now increasingly reaching the market, and it seems as if cotton acreage and possibly also production are to be expanded in 217/18 as well. Elsewhere, too, prices could prompt cultivation of larger areas, which on a global basis have fallen to the lowest level since records were first kept in the 196s (chart 9). Consequently, we expect the price of cotton to retreat again over the coming months and predict a figure of 71 US cents a pound in New York in the final quarter of the year. CHART 8: Cotton: Second consecutive deficit in million tons, 216/17 USDA and ICAC forecasts CHART 9: Cotton: Will 217/18 bring a reversal in acreage? Global cotton acreage, in million hectares USDA ICAC Ending stocks (RS) /14 214/1 21/16 216/17 global production, million tons, LS 213/14 214/1 21/16 216/17 global use, million tons, LS Source: USDA, ICAC, Commerzbank Research Source: Bloomberg, USDA, Commerzbank Research 6 1 February 217

7 At a glance TABLE 1: Our forecasts Actual Forecast Yearly average 31-Jan-17 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q Grains/Oil seeds/cotton Wheat* (CBOT) Wheat^ (Paris) Corn* (CBOT) Corn^(Paris) Soybeans* Rapeseed^(Paris) Cotton** Softs Coffee (arabica)** Coffee(robusta)*** Cocoa (London) Sugar #11** Quarterly / yearly averages* US Cents per bushel, ** US Cents per pound, *** US Dollar per ton, ^ EUR per ton, GBP per ton The actual price refers to the most active forward contract, which can differ in terms of maturity. TABLE 2: Import data and Inventories Imports / Inventories Last release Net change % change Due date Level 1 month 3 months 1 year 1 year -year Ø Chinese imports, tons, monthly Soybeans 31/12/ Cotton 31/12/ US inventories in mln bushel, quarterly, first day of the reporting month Corn 31/12/ Wheat (total) 31/12/ Soybeans 31/12/ TABLE 3: History Grains/Oil seeds/cotton Actual % change Q11 Q21 Q31 Q41 Q116 Q216 Q316 Q416 1 week 1 month ytd y-o-y Wheat* (CBOT) Wheat^ (Paris) Corn* (CBOT) Corn^( Paris) Soybeans* Rapeseed^ (Paris) Cotton** Softs Coffee (arabica)** Coffee(robusta)*** Cocoa (London) Sugar #11** US Cents per bushel, ** US Cents per pound, *** US Dollar per ton, ^ EUR per ton, GBP per ton. The actual price refers to the most active forward contract, which can differ in terms of maturity 1 February 217 7

8 CHART 1: Price performance CBOT since 27 CHART 11: Price performance Euronext since = Wheat, l Corn, l Soybeans, l Cotton (ICE), r CHART 12: US wheat export sales, weekly data cumulated million tons Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 212/13 213/14 214/1 21/16 216/17 CHART 14: EU wheat exports, weekly data cumulated million tons Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: EU, Reuters, Commerzbank Research CHART 16: Global wheat stocks wheat ending stocks in million tons, left stocks-to-use ratio in %, right = Milling wheat Paris Corn Paris Rapeseed Paris CHART 13: US corn export sales, weekly data cumulated 4 4 million tons Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 212/13 213/14 214/1 21/16 216/17 CHART 1: Wheat prices in comparison (in EUR per ton) Milling wheat Paris CHART 17: Global corn stocks Wheat CBOT (converted) corn ending stocks in million tons, left stocks-to-use ratio in %, right February 217

9 CHART 18: US soybean export sales, weekly data cumulated CHART 19: US cotton export sales, weekly data cumulated 4 4 million tons Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 1 9 million bales Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 212/13 213/14 214/1 21/16 216/17 212/13 213/14 214/1 21/16 216/17 CHART 2: Soybean imports China (monthly data) CHART 21: Cotton imports China (monthly data) 1 mln tons mln tons Soybean imports China, left 12-month sum, right Cotton imports China, left 12-month sum, right Source: Chinese Customs, Bloomberg, Commerzbank Research CHART 22: Net long positions of money managers (wheat) ' contracts Jan-12 Jan-13 Jan-14 Jan-1 Jan-16 Jan-17 spec. net long positions, l Source: CBOT, CFTC, Bloomberg, Commerzbank Research Wheat (Usd/bushel), r CHART 24: Net long positions of money managers (soybeans) ' contracts Jan-12 Jan-13 Jan-14 Jan-1 Jan-16 Jan-17 spec. net long positions, l Source: CBOT, CFTC, Bloomberg, Commerzbank Research Soybeans (USd/bushel), r Source: Chinese Customs, Bloomberg, Commerzbank Research CHART 23: Net long positions of money managers (corn) 4 ' contracts Jan-12 Jan-13 Jan-14 Jan-1 Jan-16 Jan-17 spec. net long positions, l Corn (USd/bushel), r Source: CBOT, CFTC, Bloomberg, Commerzbank Research CHART : Net long positions of money managers (cotton) 1 ' contracts Jan-12 Jan-13 Jan-14 Jan-1 Jan-16 Jan-17 spec. net long positions, l Cotton (USd/lb), r Source: ICE US, Bloomberg, Commerzbank Research 1 February 217 9

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