Wednesday, November 23, 2016

"Rabobank: Global food prices set to stay low in 2017"

Rabo is better than the average bank's agriculture-analysts and always worth a look.
From the Rabobank blog:
Record-high stock levels are set to keep worldwide food prices low during 2017 even as inflation starts to rise in many developed economies, according to a major report from Rabobank, the leading global food and agribusiness bank.
  • High global stock levels expected to keep food prices low with ‘wildcard’ China potentially selling from huge reserves
  • Trump presidency brings currency uncertainty which will translate into volatile food prices, while elections in Europe add further unpredictability
  • Changing global demographics continue to underpin demand for meat, dairy and animal feed
Staple food commodities like wheat, corn and soybeans – a key part of livestock diets across the world – are being stored in record volumes, weighing on the prices which are expected to be paid to farmers next year.

In the Rabobank Global Outlook 2017 report, which looks at the prospects for 13 crucial food and agricultural commodities, Rabobank highlights the role of China in creating further uncertainty in the market. The world’s most populous country has huge stocks of many key commodities, with estimates suggesting it holds 60% of global cotton supplies, over half of corn, 40% of wheat and 21% of soybeans.

If China decides to begin selling some of these reserves, this could depress global prices for commodities including cotton, sugar, corn, soybeans and vegetable oil, according to Rabobank.
It expects US inflation to increase to around 2% during 2017, while prices are also expected to rise in the UK and, to a lower extent, the Eurozone. Even these small increases may be enough to attract attention later in 2017 to commodity index funds, which offer a hedge against inflation while agricultural prices remain low.

Stefan Vogel, Rabobank’s head of agri commodity markets and an author of the Rabobank Global Outlook 2017, said: “After three years of declining prices and extreme weather wrecking crops in many important agricultural regions, 2017 looks set to bring some much-needed stability to food prices. Nevertheless, record global stock levels mean prices are likely to remain stubbornly low – good news for consumers but less so for the world’s farmers.

“Yet the most striking wildcard in this is China. Given the size of its population, its economic growth and its massive share of global agri commodity imports, it exerts a colossal influence on world food prices. And with huge stocks of many of the most important commodities – including corn, wheat and soybeans – any decision by China’s policymakers to begin selling down these reserves would have a profound effect on world markets as Chinese imports would decline.”

Elsewhere, Rabobank predicts that volatility in the global currency markets will move agricultural commodity prices during 2017, with the euro likely to depreciate as a result of French, Dutch and German elections during 2017....MORE
The linked one-page "Rabobank’s 12-month outlook for prices compared to the forward curve" is also worth a click with an interesting presentation format.