London, 24 June 2010

2010 outlook is bearish: Our 6- to 12-month view for the main agricultural commodities is bearish, due to a continued supply response after the price spike of 2007/08. Favourable weather conditions in 2009 and into 2010 have led to strong crops for the majority of the world’s main cropping regions.

Our wheat market view is outright bearish, due to the expectation for global stocks to depress world wheat prices through the duration of the 2010/11 season. We are also bearish soybeans, due to record crops in South America and the United States over the past season. However, soybean demand continues to exceed expectations, which limits our downside targets into the end of 2010 and early 2011.

Key Highlights

Corn: Our outlook is neutral near term but bearish out 6–12 months. Better-than-expected corn for ethanol demand growth along with improving export demand, notably from China, are supportive factors near term. However, our expectation for another record US crop in 2010 is prompting us to call for lower prices ahead. The market will now focus on July/August weather, which is critical to reach the market's current above-trend yield expectations.

Wheat: We continue to view the heavy world wheat supplies as bearish for wheat prices through the 2010/11 season. Excess rainfall in Canada and dryness in the Black Sea are a concern but heavy 2009/10 carryover stocks will absorb the impact of lower production in these regions. Generally, global wheat prospects look favourable, with world stocks expected to build in 2010/11. We expect wheat prices to decline along with corn into the end of the year.

Soybeans: We are bearish the soybean market due to the record South-American supply rebound in 2009/10. However, the market will need to see confirmation of another large US crop in 2010 before the transition between bull and bear market will be complete. Until then, price weakness will be limited by the tight 2009/10 US balance sheet and strong Chinese imports, which have consistently surprised trade observers over the past year. Even if the US crop comes in near last year's record, we think significantly lower prices are unlikely (below the $8.50–9.00 range), due to China's voracious demand engine, which now drives the soy complex.

Sugar: Strong physical demand and a Brazilian harvest that is just gathering pace will support prices in the short term. But ,from Q4, prices will come under pressure as Northern Hemisphere cane harvests commence. The hefty Brazilian crop will be followed by a large Indian crop, which together will push the market back to surplus. Prices will remain under pressure until 2012, as world availability improves and stocks build up.

Coffee: The arabica market is very tight due to crop shortfalls in the Americas, and futures prices are finally reflecting this. However, the current Brazilian bumper harvest will cap this rally soon as origin sales pick up, offering some respite to tight stocks. However, 2011 is an “off” year in Brazil's biennial cycle, so prices will trend up again. Robusta supplies are more comfortable despite the recent spike in prices. Trees are ageing in Vietnam, but existing inventories need to be worked off before this can be priced in.

Cocoa: With the market headed for yet another deficit, prices are likely to stay strong for a while. As the global demand side continues to recover from the 2009 downturn, prices will need to stay high to encourage production from around the world. We are doubtful that there will be much growth from Cote d'Ivoire in the forecast period, but there may be just enough from the second-tier producers towards 2011/12 for a tiny surplus to develop.

Ends --

For more information contact Kona Haque,  +44 20 3037 4334   This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Alex Bos +44 20 3037 4280   This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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