Agricultural commodities 'primed for a bounce'
The extent of the liquidation in agricultural commodities has left them "primed for a bounce", with corn and soybeans looking particularly strong prospects, but cocoa and wheat among the least promising.
The "significant sell-off" in farm commodity prices since late August has meant that "a number of agri prices have now fallen below fair value", Rabobank analysts said.
The extent of the liquidation is evident in cut of more than 510,000 lots in five weeks in speculators' net long position in agricultural commodity futures, leaving it "dislocated from average levels".
Meanwhile, commercial buyers have been "capitalising on" lower prices, increasing their position by nearly 600,000 lots in three weeks.
"On this evidence we see support… for most of the agri complex if prices move lower once again and positive margins are locked in," the bank said.
"Agri markets are primed for a bounce."
'The most upside'
The bank, while cutting near-term price forecasts pretty much across the complex to reflect the sell-off, lifted estimates for futures of some crops for later in 2012.
Corn futures offered "the most upside", and looked set to average $7.00 a bushel in the first three months of next year, as measured by Chicago's near-term contract. The current near-term lot, for December delivery, stood at $6.59 a bushel On Monday.
The bank lifted to 5.1bn bushels its estimate for corn use by US biofuels plants in 2011-12, 100m bushels above the official US forecast, estimating ethanol producer margins at a two-year high of $0.49 per gallon.
However, soybean futures "must outperform Chicago corn in the early months of 2012" to encourage northern hemisphere sowings of the oilseed.
Furthermore, the ability of soybean futures to remain above $12 a bushel, despite a sell-off by speculators, "is a clear indicator of fair value," the bank said.
'Further correction expected'
Wheat looked set to "continue underperforming relative to the rest of the grains and oilseeds complex", weighed down Russia's cut-price exports and a world harvest now forecast by the US Department of Agriculture as the third-largest on record.
Indeed, Rabobank hiked its own estimate for the harvest in Australia, the southern hemisphere's biggest exporter of the grain, from 24m tonnes to 25.7m tonnes thanks to "substantial rainfall throughout September".
The bank also cut estimates for cocoa futures heading into 2012, with "further correction expected… due to harvest pressure and continued weakness in demand".
While Europe's July-to-September cocoa grind hit a record high of 377,400 tonnes, this data had been "skewed" by a knock-on effect from the turmoil in the Ivory Coast, the top producing country, earlier this year, which "shuttered capacity".
Soft cocoa butter prices, and "recent weakness" in cocoa powder prices in Europe and the US had "likely put processing margins near negative".