Agri Monitor
Group Economics Frank Rijkers
Melting cocoa production spurs price increase May 2015
Dollar exchange rate causes fluctuations in wheat, sugar and coffee prices Increasing cocoa price, because of decline in Ghanese production output El Niño may cancel out price falls
Figure 1: Grain price index
Source: Thomson Reuters, ABN AMRO Group Economics
Figure 2: “Softs” price index
Dollar and interest developments lead to higher volatility… The past weeks were highly eventful in the macroeconomic arena, leading to sharp movements in agricultural commodity prices. First, there was the movement of the US dollar (USD). Since peaking in March, the dollar has already lost over 6% of its value against the euro. Wheat prices initially responded with a brief uplift but, in the absence of exports from America and high stock levels, wheat prices soon resumed their own path. A clearer effect of the drop in the USD exchange rate can be seen in the sugar price, which followed the movement of the Brazilian real (BRL) versus the USD in a strong way. This USD/BRL relation is due to Brazil’s dominance in the sugar market. The stronger BRL also pushed up the coffee price, though this effect, an increase of 3%, was less pronounced than with sugar. Another economic development, namely the interest rate reduction in China, caused a temporary rise in the price of soybeans. The lower interest rates buoyed up market sentiment, with traders expecting this stimulus measure to give a further boost to soybean imports into China, the world’s largest importer of this commodity. As a result, the price of soybeans rose 5% in a short space of time.
…but remaining low prices in the grain market After the International Grains Council (IGC) had already published its production, consumption and trade forecasts for the 2015/16 season, other important suppliers of information such as the United Nations (FAO) and the US Department of Agriculture (USDA) have now also released their projections. All these parties predict another good grains year with high output data, so that stocks are set to remain comfortable. The IGC predicts a year-on-year production decline of 1.3% for corn, wheat and soybeans relative to the record season of 2014/2015, but this is still over 5.6% above the average for the past five years. The USDA sees a much smaller contraction of global production than the IGC, namely 0.7% relative to the 2014/15 record year. The FAO, finally, has issued the most “pessimistic” forecast, predicting a 2.2% decrease in the output of corn, wheat and soybeans jointly. However, even the FAO’s projection puts total production well above the past five-year average. Due to the accumulation of substantial stocks in recent years, a strong buffer has been formed and stocks will remain ample for the coming year, also because total consumption has grown less rapidly on average. Average consumption growth for 2015/16 is estimated at just over 1%. Over the past five years consumption has grown by 2.5% on average.
Source: Thomson Reuters, ABN AMRO Group Economics