Agri Commodity Outlook 2021: Bull Waves Don’t Break

The 2020 bull run in agri commodities defied all expectations and proved immune to Covid-19’s economic and social consequences. While coffee and cocoa suffered, grains & oilseeds reached multi-year highs. Even palm oil and sugar – commodities closely associated with the energy complex, and therefore to GDP growth – performed remarkably well.

Report summary

The explanation behind the rally is multiple:

- Speculators have bought record amounts of agri commodity futures in 2020, exacerbating the price upside. As fiscal and monetary stimulus creates a flow of money out of sovereign bonds, an increasing number of investors are looking at agricultural commodities as investment assets.

- Demand has been very resilient – particularly from China – with stocks of corn and soybeans expected to dwindle over the course of the 2020/21 season as a result; meanwhile, we see a small, but necessary global surplus in wheat.

- La Niña has been posing – and will continue to pose – challenges for farmers around the globe, worsening the availability of various agri commodities.

- Many countries are trying to guarantee sufficient internal supply of agri commodities – particularly of wheat – leading to a scramble for available stocks.

Chart 1

Speculation: wall of money hitting agri commodities

From June to October, speculators expanded their weekly net long position across agri commodities for 22 consecutive weeks. This flow of money is likely to continue until economic stimulus is perceived to be ending, which is unlikely to happen before the end of Q1 2021.

Global weather: La Niña at play

Some of the consequences of La Niña have been very visible and will continue to drive prices into 2021. Dryness in the south of Brazil and parts of Argentina has affected crops like sugarcane and wheat, and posed challenges to soybean plantings. With the key crop periods starting in South America, risk remains elevated. The US Midwest also suffers from dryness, but went ahead with winter wheat plantings anyway. The potential lack of snow cover this winter, due to La Niña, could negatively affect the crop. For Russian wheat, a potential lack of snow cover could also result in much lower exportable availability next season.

Food inflation

Rising food prices are at the top of many governments’ lists of concerns. We can expect to see stocks piling at destination while exporting-country stocks diminish. Dry weather events and speculations have been driving prices higher over 2020, with the Bloomberg Agriculture Spot Index, based on nine crop prices, rising 28% since late April, to its highest level in more than four years, led by increases in wheat, corn, soybeans, and sugar.

Geopolitical tensions and FX

Agricultural supply chains have shown an incredible resilience in 2020, with only minor delays at certain ports and very few localized issues. Agriculture was mostly spared from the global slump in international trade. The outlook into 2021 is very much uncertain, as US-China relations will likely continue to be tense. Rabobank also expects an improvement in the US dollar, which could result in weaker prices for US agri commodities. However, the Brazilian real is not expected to see a return to weak 2020 levels.

Energy: a slow burn into 2021

The outlook for oil markets remains challenging, given the continued and long-term impacts of the Covid-19 pandemic. The weak end-user demand is reflected in the very low refining margins seen since the onset of the pandemic. The supply side of the market remains artificially suppressed, as a result of the historic OPEC+ deal. We expect Brent to rise modestly in 2021, to mid-USD 40/bbl, primarily on investor appetite for commodities as the global economy recovers from the pandemic into 2021.

  • Stefan Vogel

    Global Strategist – Grains & Oilseeds
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  • Carlos Mera

    Head of Agri Commodities Markets
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  • Michael Magdovitz

    Senior Commodity Analyst
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  • Andrew Rawlings

    Commodity Analyst
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