Commodities Update: The Outlook For Grains
We maintain our view that the global grains market will be better supplied in the coming months, although we do not expect prices to collapse, because of uncertainty over weather conditions (potentially affecting supply) and the pace of economic recovery (possibly boosting demand).
- Our view of significant upside risks in H1 2012 as grain exports are in a seasonal trough is playing out. We called for soybean outperformance in July and in September because of supply problems in South America (on the back of La Nina) and this seems to have played out well. We also called for some short-term upside risks to wheat and the contract surged in recent weeks because of fears over the Russian harvest linked to droughts in the country.
- In the coming months, we see the momentum wane for soybean, as all the damage to the South American crop is now priced in and as net specs are at record highs, indicating little room for more upside. We believe wheat prices have the most potential for upside in the coming months as dry weather has affected plantings in major producers. These upside risks could spread to the corn markets, too.
- Ultimately, we see upward momentum for grain prices waning once harvests gather steam in Q3 2012, as we expect sufficient supply to keep global stocks-to-use ratios, especially for wheat, above ten-year averages.
The full article is available to subscribers at Business Monitor Online. BMI’s Commodities Service covers a wide range of resources, including grains, softs, base metals, precious metals, and energy.