AVENTURA, FLA. — Large global and domestic supplies of wheat, corn and soybeans will limit short-term price gains, while record cocoa bean production will keep stocks high and the dairy market must contend with growing competition from Europe, analysts said at the International Sweetener Colloquium on Feb 26.
The removal of Chinese tariffs will “not be a big impact on soybeans,” said Stephen Nicholson, senior analyst, Rabo Agrifinance.
“The market expects a trade agreement,” he said, predicting a “quick blip” as pipelines are refilled but not a lot of longer-term upside for the “extremely bearish” soybean market with record domestic stocks and global stocks the second highest on record. He expects soybean futures around $9 a bu in the fourth quarter, down about 40c from current November prices, with upside resistance at $9.70 per bu. There is a lot of competition, the United States is losing market share to Brazil, and the Black Sea region is gaining soybean export share, just as it has done with wheat exports, he said.
Mr. Nicholson said he expects U.S. farmers to plant about 5 million fewer acres of soybeans and about 2 million more acres of corn in 2019. Planting numbers could change significantly, he said, in part because a lot of field work didn’t get done because of wet conditions last fall and many areas are very wet currently.
There’s plenty of corn, Mr. Nicholson said, noting large U.S. and global stocks and a large crop coming in Brazil. He expects corn futures under $4 per bu, but relatively stable with December prices rangebound. There is a little upside in basis levels until the new Brazil crop is ready, he said. As with corn and wheat, the United States also was losing export market share in corn, he said.
Although winter wheat futures hit fresh contract lows Feb. 26, there was potential for an “explosive upturn” in hard red winter wheat if “something goes wrong with the crop” amid the sharp drop in planted area estimated by the U.S.D.A. on Feb. 8, Mr. Nicholson said. Still, there’s plenty of hard red winter wheat around, he said. Hard red spring wheat, meanwhile, is showing good margins and growers should plant more, he said, noting the recent improved demand for protein.
For vegetable oils, Mr. Nicholson called the market a “mixed bag.” Soybean oil supplies are ample due to record soybean crush, but demand from the biodiesel sector has been strong, he said. Soybean oil futures are rangebound between 28c and 30c a lb. Global palm oil stocks have been high, and there is limited upside to palm oil prices. He said canola oil would be a good buy if it comes down to about 600 pts over soybean oil futures.
Matt Gould, editor and analyst of The Dairy & Food Market Analyst, said the dairy industry has been undergoing a structural change with the role of Oceania declining and giving way to Europe with the United States and Europe now the dominate forces in the global dairy industry.
“The European Union has emerged as a monster player,” Mr. Gould said.
Milk supplies have been very strong, and supply is a key price indicator for dairy, he said. Nonfat dry milk supplies have declined sharply, and higher prices are likely, he said, while there was a “heavy oversupply” of dry whey, which will lead to weaker prices. Butter inventories are ample, but demand has been strong and prices likely will be flat, he predicted. He also expects cheese prices to trend “sideways” as the industry is in the midst of investing in new manufacturing facilities. Cheese stocks have been heavy for some time, he said.
Mr. Gould suggested that the United States will lose market share in dairy to Europe due to a lack of trade agreements.
Jeffry Rasinksi, commodity procurement and risk management at Blommer Chocolate Co., said the cocoa industry also was going through a shift. While West Africa remains by far the largest producing cocoa bean region, production has shifted from Malaysia and Indonesia to Central America, with Brazil still a major producer as well. There also has been movement in ownership of cocoa processing plants around the world.
A global cocoa bean stocks-to-use ratio of about 30% is expected this year, which is “relatively low” for the industry, Mr. Rasinski said. But more efficient plants and processing have allowed for the industry to run with smaller year-over-year stocks.
Recent choppy cocoa bean futures indicate the market is searching for direction, he suggested.
Users have most of the cocoa butter and powder needs covered for 2019, Mr. Rasinski said.