From trade wars to currency fluctuations and extreme weather, the stability of global agri-commodity prices will come under threat come 2019.
According to research from specialist food and agribusiness bank Rabobank, global food prices are facing a “melting pot” of risks which will bring great uncertainty to the outlook for 2019.
In Rabobank’s annual global Agri Commodities Outlook report which analyses the prospects for 13 agricultural commodities, it says ongoing geopolitical tension, particularly between the US and China, currency fluctuations and the threat of the El Niño weather system are the main reasons for concern.
“The agri commodity price environment may be relatively stable currently, but it’s difficult to remember a time there were so many threats to food commodity prices on so many fronts, from trade wars to currency movements to ongoing weather threats,” said head of agri commodity markets at Rabobank and report co-author Stefan Vogel.
The report stated that if the trade war between the US and China persists into 2019 the global trade flow will be altered and remain so for the unforeseeable future.
Soybeans ware most affected due to import restrictions. Rabobank’s report forecasts that China’s soybean intake will fall below 90 million tonees in the 2018/2019 financial year. China currently imports 60 per cent of the world’s soybean trade.
This dramatic fall leaves US farmers facing an over supply of soybeans, with Rabobank forecasting that stocks more than double to record levels by the end of 2018/19.
Meanwhile, Brazil, the world’s second largest soybean producer, will see crop prices supported. This will make soybean farmers the principal beneficiary of the trade war.
The US dollar is currently at an 18-month high and it is anticipated to continue to strengthen into late 2019 before stabilising. US exports will subsequently continue to suffer from a lack of competitiveness abroad, further challenging US farmer profitability.
In Brazil, the weak real has been hit by longstanding domestic political uncertainty, helping to keep sugar and coffee exports competitive in export markets. However, a surplus of coffee beans and sugar is keeping a lid on prices.
The largest threat for farmers is the US-China trade war.
“Depending on whether the superpowers can reconcile, we’re likely to see commodities like US soybeans continue to take a hit as China snubs them. This is causing American crop farmers financial pain, while our expectation that the dollar will remain strong deep into 2019 is also a challenge for them,” Mr Vogel said.
“Nevertheless, US soybeans are cheaper than Brazil’s given levels of surplus crop, with US farmers turning to other soybean importing nations to sell stock. China might partly switch back to buying from the US, if and when, the dispute is resolved but a full recovery of this trade flow seems unlikely.”
El Niño remains on the horizon for the Northern Hemisphere, with an 80 per cent chance of El Niño being formally declared by the end of their winter.
According to Rabobank, wetter weather in the US Southern Plains could mean an uplift in wheat production.
If El Niño is declared yields of palm oil, sugar and Robusta coffee are likely to take a hit, altering trade flows in those currently oversupplied markets, meaning the global demand for coffee and sugar is expected to peak.
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