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
Agri Monitor - Melting cocoa production spurs price increase
Source: IGC
Figure 4: Cocoa production, grindings and stocks 5.000
60%
4.500 50%
4.000 3.500
40%
3.000 2.500
30%
2.000 20%
1.500 1.000
10%
500 0
0% 05/06
07/08
09/10
11/12
Stocks-to-use % (rha) Grindings (lha)
Source: ICCO
Figure 5: World coffee production
Source: ICO
13/14
Production (lha)
May 2015
Cocoa prices are increasing… As with grains, prices in the coffee, cocoa and sugar markets are largely driven by supply and demand. The past weeks produced a rapid flow of news about these products. First, there were reports of the falling cocoa output in Ghana (one of the world’s leading cocoa growers). In response, cocoa prices jumped about 8% in the past month to about 3,100 USD/tonne. Besides the lower cocoa production in Ghana there is some anxiety about drought that will cause the growing stage of the crop. At the same time there is a decline in processing figures, so the cocoa price is expected to remain around 3,000 USD/tonne in the coming months.
Figure 3: Coffee prices (Robusta versus Arabica)
x 1.000 tonnes
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…but the coffee market is confused for direction… No clear direction for coffee prices is visible as yet. On the one hand, both Volcafe and inspectors of the US Department of Agriculture see an increase in the Brazilian coffee harvest. Volcafe puts production at 51.9 million bags while the USDA projects 52.4 million bags, both forecasts representing a rise compared to production in 2014 (about 49 million bags). By contrast, Brazil’s National Supply Company (CONAB) puts production at about 45 million bags, well below last year’s output. New data are necessary to determine the course of the coffee price. In general, the blossom period has been promising in the major coffee-growing countries, so a good harvest is likely to follow. Drought in Southeast Asia effects the production of especially Vietnamese coffee. Vicofa foresees a decrease in Vietnamese production to 22.2 million bags. In an earlier stage Volcafe projected a production of 30.6 million bags which is 8 million bags higher. … and sugar is in grip of new production forecasts Sugar is in grip of exchange rates and production forecasts. For this season a new top production is expected. Stocks stay at a current high level. For the 2016/17 season officials foresee a decline in production. The most important reason therefore is failure in replanting crops in Brazil. Besides that a decrease in Brazilian export of sugar is expected, because more cane is used in ethanol production. through these developments prices (#11) will maintain at current levels around 13-14 USDc/lb. Are dark clouds gathering over the market? In general good production and high stock levels are keeping prices low in the agricultural commodities market. Recently, however, fears of a new El Niño have crept into the market. This weather phenomenon can cause extreme drought in parts of Asia, Australia, West Africa and South America, as well as heavy rainfall in the Northern hemisphere. Japanese and Australian weather agencies warn that the probability of an El Niño is growing. The signals are not yet strong enough to justify a change in position, but it is a looming risk that could affect all agricultural commodities. The direction of the commodity prices can be influenced both negative and positive by a potential El Niño. It depends on how this event will effect crop production.
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Agri Monitor - Melting cocoa production spurs price increase
May 2015
Group Economics | Commodity Research Frank Rijkers Economist Agrifood and Agricultural Commodities tel: +31 (0) 20 628 64 37 frank.rijkers@nl.abnamro.com
Group Economics Commodity Research team Marijke Zewuster (Head)
tel: +31 20 383 0518
marijke.zewuster@nl.abnamro.com
Hans van Cleef (Energy)
tel: +31 20 343 4679
hans.van.cleef@nl.abnamro.com
Casper Burgering (Ferrous, Base metals) Georgette Boele (Precious metals) Frank Rijkers (Agriculturals)
tel: +31 20 383 2693 tel: +31 20 629 7789 tel: +31 20 628 6437
casper.burgering@nl.abnamro.com georgette.boele@nl.abnamro.com frank.rijkers@nl.abnamro.com
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