• “Threats on many fronts” pose risk to agri-commodity price stability following year of uncertainty
• Unless US-China trade war is resolved, outlook is bleak for US soybean farmers, while Brazil reaps benefits, and overall production costs are set to rise
• Extreme weather set to impact soft commodities

A “melting pot” of risks – including US trade war with China, currency fluctuations and extreme weather threaten global food price stability next year, according to research from Rabobank, the specialist food and agribusiness bank.

In its annual Outlook report which analyse the prospects for 13 agricultural commodities, Rabobank says that while the global agri-commodity price environment remains relatively stable, ongoing geopolitical tension, currency fluctuations and the threat of the El Niño weather system bring great uncertainty to the outlook for 2019.

Stefan Vogel, head of agri commodity markets at Rabobank and report co-author, said: “The agri commodity price environment may be relatively stable currently, but it’s difficult to remember a time there were so many threats to food commodity prices on so many fronts, from trade wars to currency movements to ongoing weather threats.” 

Tradewars

US faces trade wars and currency headwinds, while Brazilian grain farmers benefit on both fronts The trade war between the US and China has shaped 2018. If, as expected, it continues into 2019, it will alter global trade flows in the year ahead and beyond.

Soybeans are most affected. Currently importing 60 per cent of the world’s soybean trade, Rabobank forecasts China’s intake will fall below 90m tonnes in 2018/19 due to import restrictions. With China buying from elsewhere, US farmers face an oversupply of soybeans and will likely see stocks more than double to record levels by the end of 2018/19, the bank forecasts.

Meanwhile, Brazil, the world’s second largest soybean producer, will see crop prices supported. This will make soybean farmers the principal beneficiary of the trade war, while putting heightened feed cost burdens on the livestock sector.

The US dollar is currently at an 18-month high and it is anticipated to continue to strengthen into late 2019 before stabilising. US exports will subsequently continue to suffer from a lack of competitiveness abroad, further challenging US farmer profitability.

In Brazil, the weak real has been hit by longstanding domestic political uncertainty, helping to keep sugar and coffee exports competitive in export markets. However, a surplus of coffee beans and sugar is keeping a lid on prices.

Vogel added: “The largest threat for farmers is the US-China trade war. Depending on whether the superpowers can reconcile, we’re likely to see commodities like US soybeans continue to take a hit as China snubs them. This is causing American crop farmers financial pain, while our expectation that the dollar will remain strong deep into 2019 is also a challenge for them.

“Nevertheless, US soybeans are cheaper than Brazilian given levels of surplus crop, with US farmers turning to other soybean importing nations to sell stock. China might partly switch back to buying from the US if and when the dispute is resolved, but a full recovery of this trade flow seems unlikely.”

Weather

El Niño remains on the horizon With an 80 per cent chance of El Niño being formally declared by the end of the winter in the Northern Hemisphere, Rabobank expects the weather event to drive further uncertainty across commodities markets.

Wetter weather in the US Southern Plains could mean an uplift in wheat production, according to Rabobank. Should predictions of the weather phenomenon come to pass, yields of palm oil, sugar and Robusta coffee are likely to take a hit. This will alter, in parts, trade flows in those currently oversupplied markets, given global demand for coffee and sugar is expected to remain robust.

Biosecurity

Biosecurity risks look set to spread Rabobank expects the spread of African Swine Fever (ASF) to continue to have a global impact on pork production, proving especially harmful in China with a decline in supply, rising prices and higher imports.

Europe still faces an oversupply of pork, and this will become a particular issue if an ASF outbreak hits production and results in a drop off in export opportunities. But with pork being the animal protein most at risk of disease, it’s likely to impact consumer perceptions, and as a result, demand.

It’s a similar story in the poultry market, as the growing risk of Avian Influenza can cause consumer concern and lead to significant volatility in trade streams. On the other hand, seafood and aquaculture markets are relatively free of disease issues as we head into 2019.

Justin Sherrard said: “With the severity of disease outbreaks showing no signs of being curbed, especially in pork and poultry, biosecurity will become a higher business priority for livestock and fish producers in the year ahead. Major outbreaks are affecting global trade flows and consumer preferences, and as a result we expect to see a shift to beef and seafood consumption in some markets.”

“It’s often the more challenging periods like this that can enable animal protein companies to reap rewards, providing they successfully navigate the uncertainty.”

The annual Outlook reports are produced by Rabobank’s specialist team of agricultural commodity markets researchers based around the world.