Monday, 15 December 2014

Global agri-commodities prices likely to remain volatile in 2015

Agricultural commodities are likely to remain volatile globally in 2015, with strong buying support on lows to keep prices elevated in the first half. However, global oversupply could pull these down in the second half.

A Rabobank study says the fundamentals in appear more balanced through 2015, resulting in narrower trading ranges for many commodities versus 2014. On the demand side, growth has slowed in recent years. However, lower price levels should now encourage consumption growth, which will support prices. However, a strengthening dollar, uncertain Chinese demand growth, slowing biofuel demand and weakness in crude oil prices might spoil the party.

Prices of agri commodities declined by up to 20 per cent in 2014 due to huge oversupply on stagnant global demand. Delay in implementation of a biofuel policy in Malaysia pulled down the average price of crude palm oil (CPO) to an estimated 2,140 ringgit in the December quarter from 2,693 ringgit in the March quarter. Rabobank forecasts the CPO price will recover to average 2,300 ringgit in the June ’15 quarter, before falling to 2,230 ringgit in the December quarter.

“Assuming normal growing conditions for crops, moderate increases in demand will allow stocks to build for most commodities in 2015. The recent plateau in biofuel demand – driven by slower growth in mandates and the low crude oil price, combined with a reduction in global import demand – will allow worldwide supply of grains and oilseeds to outstrip demand in 2015. However, the projected lower price levels in 2015 also provide a great incentive for consumption to exceed the forecast levels,” said Stefan Vogel, global head of Rabobank’s food and agribusiness research and advisory.

On the supply side, bumper harvests in 2014 have improved world supplies of most grains and oilseeds, resulting in lower and less volatile price levels as compared to previous years. Similarly, record stock levels will continue to hang over the sugar and cotton markets in 2015.

The Food and Agricultural Organization of the United Nations estimates world cereal production in 2014 to set a new record of 2,532 million tonnes, about 10 mt higher than November’s forecast and seven mt (0.3 per cent) above last year’s peak.

“As we have visibility for the first half of 2015, we assume agri commodities’ prices to remain volatile, with an upward bias. But, prices in the second half would largely depend upon the quantum and timeliness of the southwest monsoon rainfall. Therefore, forecasting of for the second half of 2015, as of now, would be a bit early,” said Naveen Mathur, associate director, Angel Broking.

Cotton prices are likely to remain subdued in 2015, as China’s import demand is projected to get slower by the highest proportion since 2008-09. By contrast, both wheat and sugar would strengthen after finding a base in early 2015, as supply risk persists.

Overall, agri commodities’ prices in 2015 are expected to trend lower, following improved supply. The wide price swings of previous seasons are not expected to be as pronounced in the year ahead, as stock levels have improved. However, analysts believe the commodity markets will still remain volatile in 2015, as stocks are not yet at levels to buffer a significant supply or demand shock.


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