VOLATILITY from the El Niño weather pattern and China’s economic slowdown are forecast to have the largest impact on agricultural commodities in Asia next year, according to Rabobank’s Agri Commodity Market Outlook for 2016.
The report, titled ‘Bear with Grains, While Softs Lift Off’, predicts that as dry conditions linger into 2016 from one of the strongest El Niño events on record, this may constrain production of palm oil, sugar, coffee, and cocoa, and drive up prices.
For palm oil, flat production could lead to stocks declining by 8.5 percent in 2015/16 and increase prices by 10 percent to average MYR 2,420 [$567] per tonne [metric ton].
Stefan Vogel, global head of Rabobank (ACMR), said, “Overall in 2016 globally, we will see grains continue to trade at around current price levels, and we expect some upside on soft commodities such as sugar and coffee.
“These trends will be prevalent in Asia, where China is a large importer of feed commodities and influencer of global prices, and countries such as Indonesia, Malaysia, Thailand, and Vietnam are important soft commodities producers.
“The world sugar market will get more support than other soft commodities, with deficit production expected to be the new norm. India’s production is expected to contract by 3 percent YOY [year on year]to 28.5 million tonnes, and if El Niño persists into 2016/17 Thai production will decline for the first time in five years.”
In coffee, Rabobank predicts a deficit in Robusta, with Indonesia forecast to reduce production from 12.5 million bags in 2015/16 to 10 million bags in 2016/17. Vietnam will still see a significant increase to above 28 million bags in 2015/16, up from 26.5 million bags in the previous year.
While 2016 palm oil prices will be supported by weather-constrained production, Rabobank expects competition from soy oil will prevent palm oil from rallying too high. At the same time, soy oil may see prices support from decrease in palm oil production.
The report further stated that with China domestic stocks of corn higher than ever, this may lead the government to further reduce domestic support prices and limit imports of all feed grains such as sorghum, barley, and DDGS (distiller’s dried grains with soluble) into China.
Vogel said, “Recovery of the Chinese hog industry is expected in 2016 and could result in China’s soybean imports to reach 81.5 million tonnes, up from 78 million tonnes in 2014/15, stimulating global trade.”
At a global level, the report predicts that foreign exchange rates will have a bigger influence on agri commodity markets than ever before. The US dollar is predicted to find additional strength throughout the year, while currency weakness in agri-producing regions will alter the competitiveness of production and trade flows.
Rabobank Group is an international full-range financial services provider founded on cooperative principles more than 110 years ago. Headquartered in the Netherlands, the Group’s operations include banking, asset management, leasing, insurance and real estate services, serving over 10 million clients in 41 countries.
Internationally, the Group’s focus is providing financial solutions to food and agribusiness companies and commodity traders. In the Netherlands, Rabobank is a market leader in financial services, catering to all sectors.