Tightening fundamentals and exchange rate movements played a major role in the price gains across a range of agricultural commodities. Prices now need to ration demand and encourage increased production in 2011/12.
The Rabobank Agri Commodities Monthly for October looks at the effects of global fundamentals and prices, and gives an outlook for wheat, sugar, corn and soybeans.
- Weaker US dollar makes exports cheaper
- High corn prices pushing wheat into backseat
- Ukraine imposes export quotas
The wheat market appears to be taking a backseat to the corn market and macroeconomic factors such as the dollar.
Recent currency recalibrations have made US wheat the cheapest available export wheat in the world.
In the Black Sea Region the Ukraine government imposed export quotas from 18 October. In Russia, rising grain prices are now rationing demand as millers are unable to pass on higher costs.
- US yield downgrades likely
- Need for prices to ration demand
- Risk of Chinese imports
The US Department of Agriculture (USDA) shocked the market on 8 October by slashing their expected US corn yield and production estimates.
Given the USDA’s historic tendency to make further downward revisions after reducing their yield estimates in October, 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 US 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.