Agriculture Commodity Markets Expected to Shift from Squeeze to Surplus in 2013

Despite this year’s historic low levels and record high prices for agriculture commodities, global agricultural commodity markets are expected to shift from a squeeze to a surplus in 2013, but prices will remain volatile. Particularly for grains and oilseeds, Rabobank says, a supply squeeze will drive prices higher in the first half of the year, followed by price weakening as production rebounds.

Rabobank’s annual commodities outlook, titled “Outlook 2013 – Rebalancing on a Tightrope,” analyzes how global macro uncertainty is shaping the agricultural commodity markets, specifically the impact of a weak USD on prices, as well as how speculative money flows will continue to drive trading patterns. It also provides comprehensive 2013 price forecasts and price comparisons against 2012 forecasts across the wheat, corn, soybeans, soy oil, soymeal, palm oil, sugar, coffee, cocoa and cotton sectors.

Key themes from the 2013 report include:

While global macro uncertainty continues to cloud the outlook for the agriculture commodity market, Rabobank does not see a material slowdown in global demand. In fact, Rabobank forecasts world GDP to increase 3.75% in 2013, sustaining demand even as agri markets are challenged to rebuild global stocks despite precariously balanced fundamentals Price rises in Q1 will slow demand and encourage increased global production, resulting in a rebalancing of fundamentals and weaker price outlook in the second half of 2013. Still, the lack of buffer inventory leaves the market exposed to another season of volatility and uncertainty.

“Weak global economic growth and continued macro uncertainty may cause a slight drag on demand for agricultural commodities in 2013,” said Luke Chandler, Global Head of Rabobank’s Agri Commodity Markets Research (ACMR) department. “However, a low U.S. dollar will provide support for prices. Speculative money flows will also remain very sensitive to macro uncertainties, with the risk-on/risk-off trading pattern of 2012 likely to continue. Using the S&P Agri Index as a proxy for our commodity forecasts, we expect a decline in agricultural prices of around 10% in 2013.”

Rabobank publishes its Commodity Markets Outlook every year, forecasting price trends for the coming year in global agricultural commodity sectors. In the 2012 report, the key themes identified by Rabobank – economic slowdown, speculators and the U.S. dollar, policy risk, and capacity constraints – did in fact contribute to shaping 2012 price direction: the U.S. dollar trended lower, speculators were notably bullish on grain and oilseeds, and policy changes continued to redefine markets, as predicted. We had predicted prices to decline overall but to remain above historical averages, however, the worst U.S. drought in 50 years meant our price forecasts for grains and oilseeds were too low on an absolute basis. Still, directional forecasts for soymeal and coffee were on target and price forecasts for sugar, cotton and cocoa were within 5%.

A full copy of Rabobank’s 2013 Agri Commodity Outlook report is available to the media upon request and breaks down individual outlooks by commodities. Please note that the report is for informational purposes only and may not be reproduced, distributed or published in whole or in part, for any purpose, except with prior consent by Rabobank Group.