Outlook 2019: Trade War Turbulence, With Softs Landing

2018 presented a completely new landscape of challenges and opportunities in agriculture – one that will linger into 2019, according to the recently released RaboResearch report “Outlook 2019: Trade War Turbulence, With Softs Landing”.

Podcast: Soft Commodities Outlook for 2019

The content of this podcast is for information purposes only. Review our disclaimer here.

Podcast: G&O Outlook 2019

The content of this podcast is for information purposes only. Review our disclaimer here.

Video: Outlook 2019

Video: ACMR Outlook 2019: Soybean complex

Video: ACMR Outlook 2019: Coffee & Sugar

Video: ACMR Outlook 2019: Wheat & Corn

Rabobank’s 12-month outlook for prices (compared to forward curve)

Report summary

2018 brought many surprises to commodities – impacting prices, and influencing the risks and opportunities our clients experience. Some of the worst droughts seen in decades drastically upset supplies in key producing regions in Europe, Argentina, and Australia, while heavy currency moves drove some soft commodity prices to multi-year lows. Meanwhile, political developments markedly altered trade flows, as well as soybean prices. China, the world’s largest importer of soybeans, added a high import duty on several US products. This prevents US soybeans from entering their key destination until a trade deal has been worked out. These measures change the structure of global trade and increase US inventories to new all-time highs, while hurting US farmer margins, and resulting in great uncertainty when it comes to prices and the upcoming 2019 planting season.

Macro, political, and climate risks will prevail in 2019 – and producers, processors, traders, and retailers need to prepare.

Trade distortion

The US’s trade deficit with China amounted to 0.38 trillion dollars in 2017, with the US importing half a trillion dollars in goods, but exporting only 0.13 trillion dollars to China. This is by far the largest foreign trade imbalance the US has, and it may take very long negotiations to close the gap by any significant amount. However, it was surprising just how quickly the US was able to renegotiate a trade deal with Mexico – and we can’t rule out a speedy resolution to the US-China trade war. Once achieved, it will likely result in China buying increasing quantities of American goods. In the current situation, the Chinese tariffs will result in a huge accumulation of soybean stocks in the US, with 2018/19 US ending stocks increasing by over 100%.

FX influence

The US Dollar Index has appreciated steadily through most of 2018, due to the positive economic performance of the US economy following the Trump Administration’s tax-cut programme. The Federal Reserve has increased interest rates by a whole percentage point over the last 12 months, and another hike seems likely in December 2018. Rabobank also expects a further quarter-point hike in March 2019, with risk of a further one in Q2 2019, which will likely cause continued dollar strength. That said, we do expect the dollar’s outlook to falter in the second half of 2019, as US growth slows and Fed rates plateau. Concerns about the widening US budget deficit may then also draw more attention.


Funds have seen another year of extreme activity in 2018, leading to a reversal of their net long position across G&O ahead of the trade war escalation between the US and China in mid-2018. What will funds do in the future? In principle, fund behaviour is largely unpredictable – except for index funds, which tend to invest in commodities as a hedge against inflation (which is still not a major concern in advanced economies). However, the increase in interest rates in the US could herald a return of smart money to more traditional fixed-income investments – and away from commodity funds with poor returns.


Global weather in 2018 was mixed for agricultural commodities. The US – still the world’s leading agricultural powerhouse – managed to have record yields of corn and soybeans, beating even the most optimistic estimates earlier in the year. A dry period in Europe was responsible for a 10% drop in wheat production there, as well as cuts in Russia and Ukraine. Dry weather in Argentina at the beginning of the year impacted soybean production – and, most recently, the Argentine wheat crop. Australia’s eastern production areas also suffered from a major drought, while US cotton was affected to some extent by hurricanes.

A look at energy commodities and shipping

The oil market has broken sharply from multi-year highs, as emerging market weakness and rising inventories weigh on the complex. This move lower has occurred despite sanctions in Iran going into effect in November, along with the recent US-Saudi flare-up. Looking forward, we see a fairly balanced market for 2019. The fundamental range that balances supply and demand remains unchanged, at USD 60/bbl to USD 80/bbl.