COVID-19 brought a decline in demand and falling prices for all agricultural commodities. While partial lockdowns are still in place in Europe and the US, life in China is largely back to normal. Chinese import demand for wheat, corn and soybeans, in particular, continues to increase and is resulting in a significant recovery in grains prices. Meanwhile, a recovery in the demand for sugar, coffee and cocoa has yet to materialise. For these commodities, disruptions in supply often play a major role in pricing, per ABN Amro.
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“The smooth recovery of the Chinese economy brought some revival in demand and prices, especially in the grain markets. The food price index also rose due to renewed demand growth and is now back above pre-COVID-19 levels. This draws the attention of speculators. With their expectation of further price rises, the so-called ‘long’ positions rose to record highs in some instances. This will result in more turmoil in the agricultural markets in the coming weeks. Dynamics in agricultural markets will remain high and comes with an increase in price fluctuations.”
“Wheat price has recently been boosted by drought concerns in the US and Russia as well as stronger demand from importers, especially China. Up to September, Chinese imports had more than doubled on a yearly basis. In addition, the USDA expects that in 2020/21, US inventories will reach their lowest level in six years. These aspects are keeping prices relatively high for the time being.”
“Due to the sharp increase in Chinese demand for soybeans from the US, expectations of stocks have been revised down considerably. In the 2020/21 season, stocks in the US will reach a seven-year low. Meanwhile, the price of soybeans in the US has risen to new heights. With continued demand from China, driven by the sustained growth of pig herds there, prices will increase further.”
“Unfavourable weather, strong fluctuations in stocks and exchange rate effects led to strong price fluctuations. The fundamental picture in the coffee market remains unfavourable. Slow recovery in demand, combined with stronger supply growth and high stocks, are keeping prices in check.”
“Due to the relatively low oil price and therefore the lower price of ethanol, the production of sugar from sugar beets instead of ethanol is still financially more interesting. This has created an oversupply of sugar, while demand has not yet recovered due to COVID-19. Still, the price of sugar has recently bounced back. The unfavourable weather conditions in Brazil, Thailand and Russia, and damage to the crop due to a sugar beet disease fed concerns about the supply. Speculation about the level of the Indian government’s export subsidy is also fueling market concerns. Chances of a lower subsidy are high. And a lower subsidy puts a brake on exports and keeps international supply low, which will lift prices.”
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