Outlook 2018: Good Buy, Low Prices
Rabobank’s outlook for 2018 indicates that, while global agri-commodity stocks are historically well-supplied, balance sheets are tightening. The key risk factor to the current low-price environment is a severe supply shock, driven by potential adverse weather in a major producing region.
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Rabobank’s 12-month outlook for prices (compared to spot)
Prices for agricultural products mainly continued to trend further down in 2017, for both G&O and softs. Ongoing weakness in emerging currencies supported the export competitiveness of producing countries like Brazil and Russia—keeping pressure on commodity prices—as did the absence of major adverse weather events in the main agricultural areas. But what will 2018 bring? A look to the near future is crucial to the business success of F&A companies.
Approaching 2018, the oversupply of G&O remains an ongoing issue, as record-large global stock levels will keep prices under pressure. For producers and buyers, we envisage opportunities—for example, low agricultural prices can provide ample opportunities for consumer hedging strategies, and the steep contango seen in a few agricultural commodities provides farmers with the opportunity to lock in higher prices by selling forward further into the future.
But an adverse weather event, like La Niña, could disrupt crops across key regions and cause food prices to spike trade headwinds. Producers also face trade risks from increasing freight and input costs along with fluctuating currencies.
Rabobank expects strong demand for coffee and cocoa, and a bullish outlook on wheat with rising consumption eating into stocks after US acreage record lows.