Agricultural market forecasters entered 2018 on a bullish note, lifting estimates for prices for all but a handful of contracts and, broadly, to levels above those investors are factoring in.
“Greater demand for food, feed and industrial usages are expected to boost agriculture prices this year,” FocusEconomics said, following analysis of price forecasts from a range of commentators, such as Citigroup, Commerzbank and Societe Generale.
“Our panel of analysts forecast a 12.7% annual increase” in agricultural commodity prices as of the October-to-December quarter of 2018, with further growth of 4.2% expected the following year, the research group said.
The forecasts contrast with a soft performance for 2017, when average prices in the final quarter were down 0.9% year on year, and come amid widepsread ideas that commodities, including agricultural ones, will prove more appealing to investors this year, given relatively low valuations compared with those of equities.
‘Depleted global supply’
Analysts have, over the past month, raised price expectations for six of the nine agricultural contracts followed by FocusEconomics, with the downgrades give to the outstanding three – arabica coffee, corn and oats – only small, leaving forecasts above the futures curve.
In arabica coffee, for instance, while investors trimmed their forecasts for prices in the last three months of the year by an average of 6 cents a pound, at 139 cents pound, the revised estimate is above the 131.85 cents a pound which New York’s December contract closed on Friday.
“Depleted global supply ahead of the 2017-18 harvest should lift prices somewhat,” said FocusEconomics.
“Higher global demand for coffee is expected to increase prices over the medium term.”
For Chicago corn, the forecast for prices in the last three months of this year was reduced marginally, by $0.01 to $4.10 a bushel – but remained well ahead of the $3.85 ¾ a bushel priced in by December 2018 futures.
“Corn prices should increase from their current low level, thanks to greater demand for food, feed and industrial usages,” the group said.
“In addition, a poor outlook for profits could encourage some producers to switch to producing more profitable alternatives.”
‘Demand should rise’
For fellow grain wheat, analysts nudged higher the consensus forecast for late-2018 prices by $0.05 a bushel, to $4.96 a bushel, ahead of the $4.82 ¾ a bushel at which December futures closed in Chicago on Friday.
“Global demand should rise due to greater food usage,” FocusEconomics said.
And for Chicago soybean futures, analysts raised their forecast for average fourth-quarter prices by $0.07 a bushel to $10.21 a bushel, above the $9.96 a bushel priced in to the November futures contract.
“Demand from key export markets, including China, is expected to remain strong this year and should lend support to prices,” the group said, adding also that “global output appears set to dip over the medium term”.
Record high price
However, the biggest upgrade was reserved for wool, for which analysts hiked their forecast for prices, as measured by Australia’s eastern market indicator, in the October-to-December quarter to 1706 Australian dollar cents per kilogramme.
While below the record price of 1818 Australian dollar cents per kilogramme that the indicator reached earlier this month, signalling that analysts foresee some pullback, the revised price represented an upgrade of 186 Australian dollar cents on last month’s forecast.
Furthermore, the forecast for prices at the end of 2019 was lifted too, by 378 Australian dollar cents per kilogramme to 2000 Australian dollar cents per kilogramme.
“Demand from China is strong as consumers increasingly purchase higher-quality clothes,” FocusEconomics said.
In fact, wool prices interrupted their rally in last week, falling by 17 Australian dollar cents to 1801 Australian dollar cents per kilogramme, amid reports “that fresh business had slowed into China”, Australian Wool Innovation said in a market report.
“But that is largely what is expected at this time of the year as [China] heads into its new year celebrations in the middle of February.
“Many traders believe this respite to be a brief interruption to the ruling trend” upwards in prices.
The price increase has been echoed elsewhere in the fibres complex by cotton futures, which in New York closed up 1.0%, at 83.42 cents per pound for March delivery, the highest finish for a spot contract in eight months.
Cotton proved one of the few ags in which commentators are somewhat downbeat on values, seeing values at 72.7 cents a pound in the October-to-December period, below the 75.75 priced in to New York December 2018 futures, although representing a small upgrade from last month’s forecast.
‘Prices should rise’
Elsewhere among New York contracts, investors raised their forecast for average raw sugar futures in the October-to-December quarter by 0.3 cents a pound to 15.8 cents a pound.
“Prices should rise as Brazilian producers continue to pivot towards ethanol production following the country’s new biofuels policy recently signed into law,” FocusEconomics said, with most mills able to alter the proportion of cane turned into the biofuel rather than sugar.
New York’s March 2019 raw sugar contract was priced at a relatively lowly 14.65 cents a pound, undermined last week by ideas that the switch to ethanol may stumble, if the government enacts proposals to lower hurdles on imports of the biofuel from the US.
The cocoa price forecast was lifted by $86 a tonne to $2,158 a tonne, well ahead of the $2,004 a tonne priced in to New York’s December contract.
"Cocoa prices are likely to increase this year thanks to growing worldwide demand for chocolate," FocusEconomics said, adding that the increase might have been expected to be larger were it not for "a surplus of the commodity from the bumper production in the year up to September 2017".