Coffee, cattle and wheat futures look poised to outperform in 2023, which will be marked by “acute volatility” in agricultural commodity markets braving a “cocktail of prevailing headwinds”, Rabobank said.
The agricultural lender, revealing its annual ag price forecasts, said that it held a “bearish view for a number of agricommodities”, given the potential for improved weather, as La Nina likely fades, and for economic downturn.
“A global recession would limit demand on a number of fronts, from feed and energy-related commodities to non-essential commodities like cotton, coffee and cocoa,” the bank said.
However, the outlook for broad market weakness was clouded by the low levels of world food inventories heading into next year, as well as the challenges to production increases presented by high costs of inputs and the loss of land to the Ukraine war.
‘Acute price volatility’
“High prices would normally stimulate supply, but production is currently relatively inelastic to prices,” the bank said, in comments which tally with those of the United Nations Food and Agriculture Organization.
“Area availability is limited, as swathes of very fertile land are lost in Ukraine. Farm input costs are high, La Nina is active, and the cost of finance has increased.
“So there is more pressure on demand to balance the equation,” implying some support to prices to achieve rationing.
Furthermore, the blend of a “darkening macroeconomic picture, energy shortages and geopolitical danger, with ongoing shortages of some key commodities” creates scope for “food price volatility to remain acute in 2023”.
‘Cocktail of prevailing headwinds’
Carlos Mera, the Rabobank head of agri commodities market research, said that a “cocktail of prevailing headwinds – notably a looming global recession, elevated energy prices and simmering geopolitical tensions – means both consumers and producers alike are primed for a challenging year”.
However, consumers at least face the prospect of cheaper prices of sugar, as Brazilian cane volumes recover in 2023, and relatively weak ethanol prices too raise “the prospect of Brazil adding an additional 3m-4m metric tonnes to the global market”.
Prospects also look particularly weak for oilseeds, against prospects for a strong 2023 Brazilian soybean harvest, pegged at a record 151m tonnes, while “inflation-restrained demand prospects” curtail vegetable oil prices.
Soyoil – forecast to average 62 cents a pound in Chicago in the first three months of 2023, below the 69.02 cents a pound that the March contract was pricing in on Thursday – was the bank’s most bearish bet.
By contrast coffee prices were forecast achieving “some recovery” to rank top in the forecast table, followed by live cattle and wheat.