Global price fluctuations disrupt the agri-commodity market

During October global agricultural prices skyrocketed, with tightening fundamentals and unsteady exchange rates affecting a range of agricultural commodities. Prices will need to “ration demand and encourage increased production in 2011/12”, according to a Rabobank analyst.

• Weaker US dollar makes exports cheaper
• High corn prices pushing wheat into backseat
• Ukraine imposes export quotas

Taking a backseat to the corn market and the weak dollar, the wheat market see the U.S. as the cheapest available exporter in the world. The Ukrainian government has imposed export quotas in the Black Sea Region. Meanwhile in Russia, rising grain prices are now rationing demand as millers are unable to pass on higher costs.

• Low stock levels globally and in some importing countries
• Weather concerns continue
• Rising domestic sugar prices in Brazil

Global sugar stocks have remained low, while global demand has remained high, which means supply is expected to be tight over the next 18 months. Brazil has been hit by unfavourable weather, which has affected the current crop, heightening the risk of a premium for the 2011 harvest. Brazilian Domestic sugar prices experienced a sharp rise last month, with the market responding to the tight domestic supply situation.

• U.S. yield downgrades likely
• Need for prices to ration demand
• Risk of Chinese imports

The U.S. Department of Agriculture (USDA) shocked the market on 8 October by slashing their expected U.S. corn yield and production estimates. The USDA has a historic tendency to make further downward revisions after reducing their yield estimates in October and so corn prices will need to ration demand in coming months. Uncertainty remains about official Chinese stock levels. But if China has to implement a corn import programme this would further impact the world and U.S. corn balance sheets.

• Strong global export demand
• Need to maintain price relative to corn
• La Niña weather pattern still threatens South America

Global soybean demand remains extremely robust, especially from China. Even with prices at new highs, there is no real evidence of demand rationing, while soybean prices have lost ground relative to corn. Supply prospects in South America will be key to prices going forward. Although production risks have declined over the last month, the La Niña weather system remains in a strong/moderate phase, and will be key in determining final South American production levels through to early 2011.

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