by Agrimoney.com
Societe Generale, while upbeat on cotton price prospects, warned of a "significant correction" ahead for corn futures, and lower soybean values too, thanks to competition from South American supplies.
The bank, which last week downgraded longer-term price forecast for corn and soybean futures, rated both crops among its top short-term, underweight bets among commodities as well, with copper, gold and silver.
The premium of well over $2 a bushel that old crop July soybean futures are trading at in Chicago, compared with the new crop December lot, seems "excessive", the bank said, given the growing competition from South American supplies.
"The record South American soybean crop is already beginning to displace demand from the US and should continue to be available into September," when the southern US harvest begins.
"So the need to pay a premium for immediate delivery should therefore lessen," Societe Generale said, in comments which contrast with those on Monday from Morgan Stanley.
'Correct significantly down'
However, Societe Generale saved its biggest caution for corn, in which it warned that futures "could correct significantly down" thanks in part to the newly-started harvest of Brazil's so-called safrinha crop, which is planted, typically in January and February, on land vacated by the soybean harvest.
"Brazil's second, or safrinha, corn crop is harvested over the June-August period, which should reduce foreign demand for US corn during this period as most of the safrinha crop is available for export," the bank said.
The bank also cautioned that investors, in keeping Chicago's September corn contract at a premium of some $0.40 a bushel to the December lot, appear to have overestimated the impact of slow US plantings in delaying the harvest this autumn.
The US harvest, which generally begins in August in the South, "is unlikely to be delayed by more than a few weeks… nearly a month before the expiry of the September contract", the bank said.
"Thus part of the new, and large, crop should be available in September or in the weeks following it as the harvest progresses north, which means that the need to pay a premium for immediate delivery lessens."
'Moderately bullish'
However, the bank was more positive on prospects for soft commodity prices, forecasting that arabica coffee futures would find support from the entrance of Colombia into a "smaller harvest period", while raw sugar futures will win backing as Brazilian mills use cane to make ethanol instead of the sweetener.
And it rated cotton as one of its top overweight bets in commodities, along with aluminium, Brent crude, natural gas and nickel, flagging the boosts from Chinese imports and concerns over the impact of on the US crop of "severe drought" in Texas, the top producing state.
US Department of Agriculture data overnight showed just 28% of Texas cotton crops rated in "good" or "excellent" condition, down two points week on week, and below the 31% rated in "poor" or "very poor" health.
Societe Generale said: "We are moderately bullish on cotton, despite the recent rally," which saw New York prices soar 16.7% in the first two weeks of June, before retreating some 8% back to 86,.05 cents a pound in early deals in New York on Tuesday.
"The flat price will trend higher on Chinese demand and worries over crops in Texas.
"Chinese cotton imports remain seasonally strong, spurring ideas of stronger demand throughout the year."
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