Rabobank: Commodities to move from ‘squeeze’ to ‘surplus’ in 2013, but volatility to remain

Despite this year’s historic low levels and record high prices for agriculture commodities, global agricultural commodity markets are expected to shift from a squeeze to a surplus in 2013, but prices will remain volatile, according to Rabobank’s annual commodities outlook. The report, titled “Outlook 2013 – Rebalancing on a Tightrope,” analyzes how global macro uncertainty is shaping the agricultural commodity markets, specifically the impact of a weak U.S. Dollar on prices, as well as how speculative money flows will continue to drive trading patterns. It also provides comprehensive 2013 price forecasts and price comparisons against 2012 forecasts. 

Key themes from the 2013 report include: 

Grain and oilseed price outlook: Prices will be squeezed higher in the first half of 2013, then ease in the second half as production recovers and creates a global surplus. Low global inventory levels will make prices vulnerable to high volatility and production risks. Global stocks-to-use of corn, wheat and soybean will rise just 1.9 points to 19.9% and remain below 2011/2012 levels, sustaining prices in the second half of the year. Multi-season surpluses will be required to rebuild inventories and rebalance fundamentals. 

2013 bullish and bearish calls in the agricultural commodity complex: Grain and oilseed prices are expected to be the most volatile, with a rally in Q1 giving way to weakness for the remainder of the year. Soymeal will be the worst performing commodity through the year.

While global macro uncertainty continues to cloud the outlook for the agriculture commodity market, Rabobank does not see a material slowdown in global demand. In fact, Rabobank forecasts world GDP to increase 3.75% in 2013, sustaining demand even as agricultural markets are challenged to rebuild global stocks despite precariously balanced fundamentals. Price rises in Q1 will slow demand and encourage increased global production, resulting in a rebalancing of fundamentals and weaker price outlook in the second half of 2013. Still, the lack of buffer inventory leaves the market exposed to another season of volatility and uncertainty. 

“Weak global economic growth and continued macro uncertainty may cause a slight drag on demand for agricultural commodities in 2013,” said Luke Chandler, Global Head of Rabobank’s Agri Commodity Markets Research (ACMR) department. “However, a low U.S. dollar will provide support for prices. Speculative money flows will also remain very sensitive to macro uncertainties, with the risk-on/risk-off trading pattern of 2012 likely to continue. Using the S&P Agri Index as a proxy for our commodity forecasts, we expect a decline in agricultural prices of around 10% in 2013.” 

Rabobank publishes its Commodity Markets Outlook every year, forecasting price trends for the coming year in global agricultural commodity sectors. In the 2012 report, the key themes identified by Rabobank – economic slowdown, speculators and the U.S. dollar, policy risk, and capacity constraints – did in fact contribute to shaping 2012 price direction: the U.S. dollar trended lower, speculators were notably bullish on grain and oilseeds, and policy changes continued to redefine markets, as predicted. 

The bank had predicted prices to decline overall but to remain above historical averages, however, the worst U.S. drought in 50 years meant Rabobank’s price forecasts for grains and oilseeds were too low on an absolute basis. Still, directional forecasts for soymeal and coffee were on target and price forecasts for sugar, cotton and cocoa were within 5%. 

Rabobank makes the following predictions for 2013: 

• Corn - We expect CBOT corn prices to fall 24% from Q1 2013 to average USD 6/bushel in Q4 2013 during the U.S. 2013/14 harvest. Despite the bearish outlook, the beginning of 2013 is expected to see prices rise from current levels to encourage further demand rationing in the U.S.. 

• Soybeans - Soybean prices are expected to remain supported in Q1 2013 on tight export supplies before declining as production rebounds later in the year, with prices for the year averaging below 2012 levels. 

• Soymeal - CBOT soymeal prices are likely to drop by nearly USD 75/ton from current levels by the end of 2013 as demand slows.

• Wheat - CBOT wheat prices are forecast to rise to USD 9.10/bushel in Q1 2013 and then fall 23% to USD 7.00/bushel by Q4 2013.