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Bottom of the Cycle?

September 2016

Agri commodities have been in a multiyear bear market and with prices still under pressure, one wonders whether they have finally bottomed

The FAO (Food and Agriculture Organization) Food Price Index (FPI) moved slightly lower to 161.9 points in July 2016 – the modest decline followed five consecutive monthly increases and was largely caused by drops in international quotations of grains and vegetable oils, more than offsetting firmer dairy, meat and sugar prices. Amongst tracked commodities, the World Agricultural Supply and Demand Estimates, USDA raised estimates of global wheat supplies for 2016/17 while cotton prices have been helped upwards by better than expected demand straining stocks towards the end of the year 2015/16.

Agrisoft-Table-Sep16Wheat & Rice
In the recently released World Agricultural Supply and Demand Estimates, USDA raised estimates of global wheat supplies for 2016/17 by 2.3 million tons on a 4.9 million production increase that is partially offset by a decrease in beginning stocks. Russia’s wheat crop is raised 7.0 mt to 72 mn on excellent growing conditions throughout the country and harvest reports showing very high yields. The same favorable conditions are reported in Ukraine, Kazakhstan besides Australia and Canada. These production increases though are partially offset by a 9 mt reduction in the EU, due to excessive rain in key growing regions, particularly in France. French yields are projected to be the lowest in nearly thirty years. For the EU as a whole, 2016/17 yields are projected to be the lowest since 2012/13.

As for rice, it predicts the 2016/17 global production forecast fractionally lower at 481.1 mt, the highest on record. Crop forecasts for 2016/17 are lowered for Afghanistan and Bolivia but raised for Iran. Global consumption for 2016/17 is lowered 1.8 mt to 478.8 mn, mostly due to a reduction for India. The 2016/17 global ending stocks forecast is increased 6.5 mt to 113.8 mn, 2% above the previous year’s revised estimate. Of this, India accounts for most of the upward revision in the global ending stocks forecasts.


World corn trade in 2016/17 is expected to total 133.7 mt, down 2.2% from the year before but the second highest ever. The largest import declines are foreseen for China (2.2 mt), the EU (1.2 mt), and Vietnam (900,000 tons). On the export side, a large decline in Brazil’s expected corn exports (13.5 mt) will likely be largely offset by increased exports by the United States (5.5 mt) and Argentina (4.5 mt).

The chart indicates that both world consumption and trade of corn have been trending upward since 2000/01, but trade jumped in 2013/14 and has continued at a higher plateau since then. World corn ending stocks in 2016/17 are expected to rise 11.5 mt from the year before to 220.8 mn.

The FAO sugar price index averaged up 1% month-on-month. International sugar prices were largely influenced by movements in the Brazilian Real, which strengthened against the US dollar (up by around 4% in July compared with June). A stronger Real is supportive for international sugar prices because it limits Brazilian sugar exports to the world market as producers prefer to process sugarcane into ethanol for local sale.

International cotton prices have trended higher – this as significantly lower crops in the five largest producing countries (accounting for 76% of world output) and higher than expected demand led to tighter stocks at the end of 2015/16, at which time world ending stocks were estimated to have fallen by 12% to 19.7 mt as per the International Cotton Advisory Committee (ICAC). Stocks outside of China decreased by 9%, to 8.4 mt, which is the lowest level since 2010/11.

World cotton demand declined by 1% to 23.9 mt in 2015/16, but world production decreased by 18% to 21.3 mt, contributing to the tight supply situation at the end of the season, impacting prices upwards. India, the world’s largest cotton producer, saw its production fall by 11% to 5.7 mt in 2015/16. Although world production is expected to increase in 2016/17, consumption is projected to remain stable at 23.9 mt.

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