Wheat, soybeans and corn set to be the commodities with the largest price hikes, but coffee and cocoa buck the trend as lower demand drives prices down, says Rabobank.
Agri-commodity markets are set to begin 2021 with high prices and a range of factors that are likely to see prices hike further, according to Rabobank’s annual Outlook report.
The food and agribusiness bank forecasted that the fallout from the COVID-19 pandemic, which saw countries across the world stockpile goods, along with expected poor harvests due to dry weather conditions, are set to increase agri-commodity prices and create a period of agri-commodity inflation which would not ease until at least mid-way through 2021.
Rabobank pointed out “strong upside potential” in soybeans, corn and wheat, among other agri commodities. The main engines fuelling this price upside are weather risks, La Niña in particular, food import demand due to countries stockpiling grains and oilseeds and speculation. There are a few exceptions. The prices of coffee, cotton, cocoa and sugar are expected to decline, as these commodities saw reduced demand in 2020, with the effects lingering into 2021.
Among the factors that may influence commodity prices next year is La Niña, which could hit crops across the world, potentially causing a lack of snow cover and putting wheat crops at risk as well as raising the risk for South American drought, which can put soy and corn crops at risk. There is also uncertainty around the approach to China that will be taken by US President-elect Joe Biden, and how that will influence the interplay between two of the biggest players in the global agri-commodity market.
Entitled Bull Waves Don’t Break, this year’s Outlook report tracks the prospects for a basket of 13 key agri-commodities in the following year. Particularly, soybeans prices saw the “biggest price decrease” of all commodities tracked in 2020 following two years of oversupply and trade-war induced low prices which in the US were below the cost of production. Prices increased following a Chinese-led import programme which saw them jump to a four-year high, and this is expected to continue into 2021 led by continued demand from China, Rabobank added.
And on coffee, it has seen a global drop in demand driven by lower out-of-home consumption as a result of global lockdowns. However, Rabobank highlighted the demand is expected to pick up by 2% in 2021 but remain below 2019 levels. Production of coffee has remained largely unaffected by the pandemic, with Brazil reporting a record harvest, so it is likely consumers will wake up to ample coffee stocks in 2021. However, the amount of exchange-certified stocks will remain limited, and potentially lead to “price turbulence in the future market in 2021”, it warned.
Stefan Vogel, global strategist and head of agri-commodity markets at Rabobank, said: “2020 has been a year like no other, but the agri-commodity supply chain has fared well, ensuring the global food supply has remained intact during the pandemic despite stockpiling by both countries and consumers.
“The current circumstances have given farmers some respite after years of stubbornly low prices but 2021 brings its own risks. Even with rising hopes of a vaccine, COVID-19 remains a difficult to predict risk, while La Niña has the potential to hit crop yields across the world.
“Wheat, corn and soybean prices are set to remain high and could increase further, with farmers continuing to take advantage of the favourable production and exporting conditions. Yet cotton, coffee and cocoa have hit a wall driven by reduced consumer demand due to COVID-19.”
Rabobank predicted an “uncertain outlook” for 2021 as trade to China hangs in the balance. China has been importing increasing amounts of US soybeans and corn to feed its recovering livestock sector, which has also alleviated tensions with the US. It is also “unclear” how much it will pivot back to Brazil to fulfill demand in 2021.
“In recent years, the volatile relationship between the US and China has resulted in much uncertainty for agri-commodity prices,” Vogel said. “Following a period of bilateral trade talks, a question mark remains over how robust this relationship will be under the new administration, and how this will impact the balance of trade in key agri-commodities like soybeans.”