Global Commodity Outlook

Following more than two years of stability, agricultural commodity prices began to strengthen in the first quarter as a result of reduced plantings of key crops in the United States (notably maize and soybean) and unfavorable weather in South America (soybeans). The World Bank’s Agriculture Price Index gained 4 percent (q/q), the first significant increase since mid-2016. Food commodities rose 4.3 percent, reflecting gains in all three grains (maize, rice, and wheat) as well as in soybeans, although some edible oil prices (such as palm and rapeseed oil) experienced significant declines . The beverage prices index was largely flat as a decline in tea prices was offset by cocoa price increases. The raw material price index rose due to a large gain in cotton prices. Agricultural prices are forecast to gain 2.2 percent in 2018 and a further 1.3 percent in 2019. Grain prices and oils and meal prices are projected to gain 8 percent and 4 percent, respectively, in 2018, mainly due to lower plantings. A key policy risk is the introduction of countervailing duties on soybeans by China in response to U.S. tariffs.

Grain prices :

Grain prices are expected to increase 7.5 percent in 2018 and rise an additional 1.8 percent in 2019


Global production of wheat, which has been revised upwards repeatedly throughout the current crop season, is projected to reach a record 759 million metric tons (mmt), 1.2 percent higher than last season’s 751 mmt, according to the U.S. Department of Agriculture (USDA). Conditions for the current crop season, which is coming to a close in some countries, have generally been favorable, including for the winter crop in the two key Central Asian wheat producers (Russia and Ukraine) and in India for the upcoming rice crop. Some weather concerns in North America, notably a drought in the United States and temperature changes in Canada, are not strong enough to alter the global outlook significantly.With global consumption expected to grow by only 1 percent from last season, the stocks-to-use ratio for wheat (a measure of supply relative to demand) is forecast to advance to 36.5 percent, a three-decade high. An early assessment for next season’s wheat crop in the United States, based on the USDA’s prospective plantings report (released on March 29), points to an increase in wheat area by 3 percent (for all types of wheat). If the assessment for the United States materializes, next season’s global wheat output could push stocks higher.


Rice production is expected to remain virtually unchanged in 2017-18 at 487 mmt (against earlier expectations of decline). Sowing in most rice-producing South-East Asian countries, including Indonesia, the Philippines, and Vietnam, is taking place under benign conditions. Growing conditions are also good in India and Thailand, the world’s top two rice exporters. With global rice consumption expected to increase only marginally (about 1 percent), the stocksto-use ratio is seen reaching an 11-year high of 30 percent. Based on USDA’s March assessment of global crop conditions—the last update for the current season— combined global supplies of wheat, maize, and rice are projected to reach 2,901 mmt this season, 4 mmt higher than 2016-17, the fifth consecutive surplus season.


Global maize production is expected to fall more than 3 percent this season, to 1,043 mmt. Crop conditions in the Southern Hemisphere are mixed—Brazil’s harvest is expected to be near its five-year average; but weather conditions in Argentina have been unfavorable notwithstanding some recent improvement. Despite a promising start in maize sowing in the Northern Hemisphere (United States, Mexico, and China), the USDA’s prospective plantings report points to a 2 percent decline in land allocated to maize for the next season. South Africa may also experience a decline in maize plantings. Global maize consumption is anticipated to expand nearly 3 percent, reducing the stocksto-use ratio to 18.6 percent, nearly 4 percentage points below last season but much higher than the lows in 2010-12.


Gains in soybean, soybean oil, and palm kernel oil prices were counterbalanced by declines in palm and coconut oil due to ample supplies in Indonesia and Malaysia. The production outlook for edible oils remains favorable following the 2015-16 sharp drop caused by El Niño Global production of eight of the most consumed edible oils (including palm, soybean, and rapeseed oil) is forecast to reach 192 mmt, 5 percent more than last season and a cumulative 10 percent above 2015-16. More than half of the anticipated growth is expected to come from palm oil, which is produced mainly in Indonesia and Malaysia, and soybean oil, of which Argentina, Brazil, and the United States are among the key producers. The oilseed supply outlook during the upcoming season (October 2017-September 2018) is also healthy, with global supplies for the ten major oilseeds projected to reach a new high of 562 mmt (up from the current season’s 560 mmt). Oils and meals are projected to advance 4 percent in 2018 and edge up 1.5 percent in 2019, largely a reflection of tight soybean supplies.


A weather-related decline in Argentina’s soybean output is expected to be offset by increases in cottonseed, palm kernels, and rapeseed.


Following six months of relatively low and stable prices, cotton prices surged 11 percent in the first quarter of 2018, reaching a four-year high in March (Figure 19). The increase reflects an expected production decline in next season (2018-19) to 25.4 mmt, down from last season’s 25.8 mmt, mainly a result of a more than 3 percent drop of India’s output (the world’s larger cotton supplier). The expected drop in production comes as global consumption is expected to increase by more than 4 percent. Stocks for the next season are expected to decline by 1 mmt and be 20 percent lower than 2014-15 highs. Given the tightening conditions in the global cotton market, prices are seen advancing 6 percent in 2018 before stabilizing around $2/kg from 2019 on.


The World Bank’s Beverage Price Index dropped marginally in the first quarter (q/q) and is more than 7 percent lower than a year earlier. A surge in cocoa prices was more than offset by lower coffee and tea prices. Both Arabica and Robusta prices have fallen, due to stronger-than-expected exports from most exporters as well as a large upcoming Brazilian crop (Figure 18). Global coffee production is projected to exceed 168 million bags in 2017-18, up 7 percent from the previous season. Global consumption is estimated at 161 million bags, leaving a 7 million bag increase in stocks. Arabica prices are forecast to average $3.25/kg this year, down 2 percent from last year, while Robusta prices are set to decline 10 percent in 2018. No recovery is expected in 2019.


The World Bank's Fertilizer Price Index rose marginally in the first quarter (q/q), following an 8 percent gain in 2017 (Figure 20). Although there was moderate demand over the period, the fertilizer markets remain over-supplied, as new capacity continues to come online. Urea prices dropped 6 percent on weak import demand. This followed strong price gains in fourth quarter due to supply shortages. Other fertilizer prices moved higher in the first quarter. Phosphate DAP and phosphate rock prices rose 13 percent and 6 percent, respectively, on supply outages and higher input costs, while potash prices were unchanged. Fertilizer markets continue to face relatively weak global demand due to low crop prices, while new capacity continues to come online from investments made several years ago when fertilizer prices and farm profitability prospects were higher.

Source: Source: Commodity Markets Outlook : A World Bank Quarterly Report, April 2018