In its market outlook for 2016, Dutch agri-business bank Rabobank expects that lingering dry conditions from one of the strongest El Niño events on record could constrain production of palm oil, sugar, coffee and cocoa and thereby drive up prices.
Rabobank’s Stefan Vogel said that while grains continue to trade globally at around their current price levels, there will be “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 an influencer of global prices, [whereas] countries such as Indonesia, Malaysia, Thailand and Vietnam are important soft commodities producers,” Vogel said.
The world sugar market will receive more support than other soft commodities, with deficit production expected to be the new norm, Rabobank predicts.
India’s production is expected to contract by 3%, compared to last year, to 28.5m tonnes. If El Niño persists into 2016/17, Thai production will decline for the first time in five years, the report adds.
It also predicts a deficit in Robusta coffee, with Indonesia forecast to lower production from 12.5m bags in 2015/16 to 10m bags the following year. Meanwhile, Vietnam will still see a significant increase to above 28m bags in 2015/16, up from 26.5m in the previous year.
Flat palm oil production could lead to stocks declining by 8.5% in 2015/16, with prices increasing by 10% to average MYR2,420 (US$567) per tonne, the report said.
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.
With China domestic stocks of corn higher than ever, the government might be moved to further reduce domestic support prices and limit imports of all feed grains, such as sorghum, barley and DDGS, into China.
Vogel said, “Recovery of the Chinese hog industry is expected in 2016 and could result in China’s soybean imports to reach 81.5m tonnes, up from 78m 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 expected to find additional strength throughout the year, while currency weakness in agri-producing regions will alter the competitiveness of production and trade flows.