USDA’s projection of 7 million metric tons is likely on the low side for Chinese buying.
Echoing a chorus of recent outlooks, Rabobank sees continued weakness in grain and oilseed prices this year. "Plateauing biofuel demand, China’s import appetite and commodity currency weakness will drive ag prices in 2014." On the positive side for producers, the bank is looking for most commodity prices to remain above breakeven levels—even if only barely—this year. "Most of the easing has already taken place, but we expect prices to continue to ease for most markets in 2014," Rabobank’s 2014 Agri Commodity Markets Outlook states.
The bank calls for corn futures prices to average $4.30/bu. in the first quarter 2014, $4.20 in the second quarter, $4.30 in the third, and a low of $4.10 in the fourth quarter (37 cents below December futures on January 24). Over the next three to five years, corn prices are likely to be slightly above breakeven for most producers, in the $4 to $5/bu. range, says Sterling Liddell, senior vice president, food and agribusiness research with Rabobank.
Rabobank sees greater softening of soybean futures: $12.50 in the first quarter, $12/bu. in the second, $11.80 in the third and $10.70/bu. in the fourth quarter (35 cents below November futures on January 24). For wheat, the outlook calls for a tight range of prices for the year between $6.45/bu. in the first quarter and $6.40 for the following three quarters. "Wheat prices are likely to maintain a strong premium over corn during 2014," according to the report. Cotton prices are expected to be 73 cents per pound (fourth quarter) to a high of 77 cents for the year in the second quarter. Like corn and soybeans, cotton prices have declined from the fourth quarter of 2013, when they were 80 cents per pound.
For corn, "the expected consequence of large U.S. on-farm storage volume is slow downward price erosion as stocks trickle out," Rabobank says. It sees demand headwinds, particularly from ethanol that will restrict use of the biofuel to 4.8 to 4.9 billion bushels, down from peak corn demand in 2011 of over 5 billion for ethanol. Corn stocks-to-use is forecast at 17.4%, the highest in three years at 1.8 billion bushels and a sharp turnaround in just one year.
"Chinese buying is the demand wild card for 2014," Rabobank says. "USDA’s projection of 7 million metric tons is likely on the low side for Chinese buying. Rabobank looks for demand between 7 and 10 MMT. "Low-cost corn will present the best opportunity seen in the past four years for China to build strategic reserves against potential future high prices."
Market estimates place corn demand for rebuilding national stocks at nearly 30 MMT, which would effectively double the current estimate of Chinese national stocks. On the potentially bearish side, Rabobank says questions remain over China’s action to block entry of the unapproved (in China) GMO variety MIR 162. If this signals a move to supply more demand internally and imports drop much below those forecast by USDA, corn prices could drop into the $3.70 to $3.80 range, Rabobank says.
Soybean Prices Could Decline Sharply
"Soybeans are poised for a substantial downward adjustment from current levels," Rabobank says. Large production from both the U.S. and South America would drive global stocks-to-use to 29% in 2013/14, "the main bearish factor for prices moving forward." However, China’s demand will continue to be one of the main factors supporting soybean prices in 2014, Rabobank says. Domestic production has decreased 10% and stocks in China are running low, the report notes. As a result, Rabobank forecasts Chinese soybean imports to reach 69.5 million metric tons in 2013/14, 16% above last year’s levels.
Of particular importance to total grain and oilseed demand is the plateauing of biofuel demand, Rabobank says. This has allowed the global supplies to keep pace and even outstrip demand. For much of the past decade, the rapid growth in biofuel demand—at around 25% on an annualized basis—has played a significant role in the growing supply and demand imbalance in global grain and oilseed markets, Rabobank says. "However, the maturation of the global biofuel industry, together with some weaker political incentives, has seen grain and oilseed use for biofuels begin to plateau and even decline for some commodities." Rabobank does not expect any material change in the current situation for grain and oilseed markets. "If anything, lower mandates appear more likely than not."
On the positive side, Rabobank sees the global economic recovery to gather pace during 2014. An improving U.S. economy is likely to lend some support to the U.S. dollar, but it will take time for the Federal Reserve Board to halt its quantitative easing program and even longer before it finally starts to tighten monetary policy settings. However, it may take a while before the U.S. dollar wins back significant ground versus other currencies, though Rabobank expects that a stronger dollar should become more evident during the second quarter of 2014. "The prospect of QR tapering in the U.S. poses a risk to emerging market and commodity currencies alike, with depreciation expected to drive producer selling opportunities across soft commodity markets, pressuring prices." One currency unlikely to strengthen is the Brazilian real, because Brazil’s economy is suffering from slow growth and rising inflation.