2014: Stability in commodity markets?Print
While stability is not a word associated with agricultural markets over the past decade, 2014 is shaping up to be a relatively balanced year for most commodities, according to Rabobank’s Agri Commodity Markets Outlook 2014 report.
Record prices and extreme volatility, which have been typical of many markets since the early 2000s, look to be replaced by more balanced fundamentals, and consequently narrower trading ranges in some, if not most, markets in 2014. Global inventory levels have been rebuilding throughout 2013, and the rapid demand growth of recent seasons has slowed. Key variables to watch in 2014 include slowing biofuel demand, commodity currency weakness and uncertain Chinese demand growth.
Rabobank’s report provides three scenarios:
• Base case: factors keeping prices in line with current projections;
• High case: factors driving prices higher; and
• Low case: factors driving prices lower.
Here's a look at the scenarios for corn and soybeans.
Corn: Supply pressures to drive corn prices lower in 2014 before acres rebalance in 2014/15
Base case: Empowered by low interest rates and access to cash, U.S. farmers will store a significant portion of the 2013 corn harvest into 2014. Key selling periods could come in spring, when fertilizer and rent payments are due.
High case: Large U.S. on-farm stocks keep corn off the market, slowing price erosion, and China’s demand exceeds expectations. Nearby price ratios for soybeans and wheat compared to corn push 2014 corn acreage lower. Rabobank forecasts a 3% decline in U.S. corn acreage in 2014, providing strength to new-crop prices.
Low case: China’s U.S. corn import demand weakens with the arrival of the South American crop.
Soybeans: Outlook for soybean prices is bearish on record South American crop and sustained global demand.
Base case: Soybean stocks are expected to recover in 2013/14 as a result of large harvests in the Americas, generating a global production surplus and increasing global stocks. China's domestic production has decreased and domestic stocks are low, sustaining U.S. soybean cash and futures prices. However, that could ease in early 2014 when Chinese demand shifts to South America.
High case: Weather problems during the South American growing season provide upside risk, and any weather shocks that impact yield will skew prices upwards. A repeat of last year – when logistical bottlenecks in Brazil and slow farmer selling in Argentina – is possible.
Low case: Downside risk is provided by lower-than-expected Chinese purchases, or larger-than-expected U.S. soybean acreage in 2014. Current soybean-to-corn price ratios are unsustainable, but provide adequate incentive to switch corn acreage to soybeans in 2014. Rabobank forecasts a planted are increase of 2.6%, but any additional increase could push prices downward.