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Laggards among the Laggards

May 2016

Most agricultural and soft commodities’ prices continue to weaken, and investors in these commodities are expected to continue to feel the pain this year

Agri Commodities continue to remain laggards within the overall commodity pack. As seen from the chart, the FAO Food Price Index (FFPI) trades around the lowest level in the last 10 years. While the index averaged 151 in March 2016, up 1% from a month earlier, it is nearly 21 points or 12% lower than the year back levels. (The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices).



The recently released Wheat Outlook by the US Department of Agriculture estimates world wheat production for the current wheat year (July 2015 – June 2016) at 733.1 million tons, up marginally from its earlier estimate. The same is on the back of upward revisions in the European Union (EU) and Argentina offset by a slightly lower estimate in Ethiopia and Pakistan. At the same time, consumption estimates have been trimmed slightly to 676.8 million. Thus projected is a surplus of 56.2 mt which does not augur well for traders expecting some reversal in the downwards trend witnessed since mid-2012. Wheat futures, trading currently at close to $460 a bushel, are very near the lows of $426 a bushel since the turn of the decade.


Close on the heels of wheat is rice, which currently trades at multi-year lows. As reported by the Rice Market Monitor, FAO, reflecting the influence of the El Nino conditions, the global outlook has deteriorated if compared to December expectations, mostly on worsening prospects for India, North Korea, Myanmar and Thailand. It forecasts a production of 738.2 mt, depressed by a 1.3% dip of plantings. Production is forecast to move up to 745.5 mt in the coming year on the back of an expected uptick in India and Thailand. Global rice inventories at the end of 2015/16 are projected to fall to 168.9 million tonnes.


Corn futures continue to remain range bound with average first quarter prices at $363 a bushel. Recently the commodity saw a sharp decline to the lowest level in 17 months after a U.S. Department of Agriculture Govt. report showed that farmers plan to sow 93.6 mn acres of the grain in 2016, exceeding all estimates by analysts and boosting prospects for higher supplies after the harvest (US is the largest corn producer in the world). Planting is expected to rise 6.4% from a year earlier to the third-highest since 1944. The preference of corn over soybean continues with reports indicating soybean planting to reduce lower to 82.2 million acres from 82.65 million in 2015.



Raw-sugar futures have trended higher in the first quarter with an average price of $417 a tonne, a 12% rise over the comparative figure for 2015. The higher prices are a direct effect of the strongest El Nino registered in two decade which is driving a smaller sugar crop across many Asian countries including China, India and Thailand. However, Brazil’s early start to the harvest season is expected to overshadow forecasts for a global deficit. Brazil’s government recently released its first official estimate of the season’s cane crop, with mills expected to boost sugar output to 37.5 mt from 33.5 mt last season. This is estimated to be the highest since the country recorded 37.9 mt during the 2013-14 season.


The International Cotton Advisory Committee (ICAC) expects cotton prices to rise in the next season — this as the market is expected to continue to remain in deficit. The ICAC forecasts International Cotlook A Index (basket of global cotton prices) to inch up by 2 cents a pound, to 72 cents a pound, in 2016-17, as global cotton stocks continue to fall. This although small is a directional shift for cotton markets, which have been on a downward trend. 2016-17 is expected to see production up by 4%, at just under 23 mt, the first time cotton production has risen YoY.


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