‘No easy answer’ to where grain prices will bottom

(Agrimoney) – There are “no easy answers” to the question of where the decline in ag prices will bottom out – although this week’s key US Wasde crop report could catalyse short-term gains in corn, Morgan Stanley said.

The investment bank, flagging “numerous questions” from investors about when the grain price rout will end, said that demand factors looked unable to provide an answer.

“We see few near-term opportunities for increased demand to provide that floor,” given that “all US end users” of grains have for a while been enjoying positive margins without stopping the price slide, Morgan Stanley said.

Sure, on the supply side, “corn prices below global marginal production costs should eventually translate into lower global production.

“However, the long lags between planting and production limit the effectiveness in using these costs as a guide for finding a near-term floor.”

‘Should provide support’

The bank instead said it was focusing on the “directional implications” for prices of upcoming events, including the US Department of Agriculture’s latest monthly Wasde report, on Thursday, which is expected to unveil long-awaited – upward – revisions to forecasts for US corn and soybean crops.

In fact, the Wasde “should provide support” for corn futures, “while further pressuring soybeans”, Morgan Stanley said.

The bank forecasts US corn production this year at 13.917bn bushels – a touch below last year’s record high, and well below the 14.032bn the USDA has already pencilled in, before any yield upgrade on Thursday.

Bottom bets

The comments indeed come amid a rash of interest in broker forecasts for how further corn and soybean crops will fall, given the prospect of record US corn and soybean crops.

Prices typically hit a floor around late October, the harvest low, with the removal of the last of the weather premium and a jump in supplies handing market power to buyers.

For corn, Bill Tierney, at Chicago-based AgResource has forecast corn prices averaging $3.40 a bushel this season, before falling below $3 a bushel from 2015-16 to 2019-20.

Kansas-based broker Paragon Investments has forecast prices hitting $3.20 a bushel, as has Purdue University ag economist Chris Hurt, providing the US yield tops 170 bushels per acre.

For soybeans, Thomas Mielke, head of influential analysis group Oil World, said last week that futures could temporarily fall below $9.50 a bushel.

Meanwhile, New York broker Jefferies said that comparison of price action with other years when US soybean yields hit records suggests prices falling to $9.65-9.84 a bushel as of their harvest low.

An alternative analysis, factoring in soybean price behaviour in years when unusually high spring prices prompted strong plantings, suggested a bottom of $9.40 a bushel.