Global Commodity Outlook

Prices of industrial commodities continued to strengthen in the third quarter (q/q), while most agricultural prices remained broadly stable. In the oil market, inventories continue to fall amid strong demand, OPEC production restraint, and stabilizing U.S. shale oil production. Crude oil prices are expected to average $53 per barrel (bbl) in 2017 (up from $43/bbl in 2016) and rise to $56/bbl in 2018, a small downward revision from the April 2017 forecast. Agricultural prices are seen broadly unchanged in 2017 and are anticipated to gain marginally in 2018. Most food markets are well-supplied and the stocks-to-use ratios of some grains are forecast to reach multi-year highs.Agricultural prices declined nearly 1 percent, continuing a trend of weakness that began earlier in the year. Food prices dropped 1 percent, reflecting softer prices for maize, rice, and other food items such as sugar. Oils and meals bucked the trend by gaining 1 percent on the back of strengthening soybean prices due to a smaller than-expected North America crop. Fertilizer prices edged up 2 percent, with rises mainly in urea due to strong demand in Brazil and production outages in North Africa and Middle East Agricultural prices are forecast to recede modestly in 2017 but largely stabilize in 2018.

Grain prices :

Grain prices are projected to remain broadly stable in 2017 but are anticipated to increase 1 percent in 2018 because of a projected tightness in maize supplies. .


Global production of wheat, which has been revised upward throughout the current crop season, is projected to reach 751 million metric tons (mmt), marginally lower than last season’s 754 mmt, according to the U.S. Department of Agriculture (USDA). Conditions for the global wheat crop are generally favorable. All three Central Asian wheat producers (Kazakhstan, Russia, and Ukraine) experienced favorable weather conditions, while the winter crops in North America and the Southern Hemisphere (notably Argentina and Australia) proceeds as expected. With global wheat consumption projected to remain largely unchanged from last season, the stocks-to-use ratio for wheat (a measure of abundance of supply relative to demand) is forecast to exceed 36 percent, 3-decade high.


Rice production is expected to recede marginally to 489 mmt in 2017-18 (3 mmt lower than last season), mainly in response to mixed growing conditions in some Asian producers, notably China, northern Thailand, and Vietnam. However, conditions in India, Indonesia, and the Philippines remain favorable. Because global consumption is expected to remain constant, the stocks-to-use ratio is seen reaching an 11-year high of 30 percent. Based on USDA’s October assessment—the sixth update for the current season—combined global supplies (beginning stocks plus production) of wheat, maize, and rice are projected to reach 2,896 mmt this season, 8 mmt lower than 2016-17 .


Maize production is projected to decline more than 3 percent this season. Although crop conditions in the United States, the world’s top maize supplier, are favorable, dry conditions are causing concern in the European Union and Ukraine. Sowing for the new season is currently underway and progressing well in the Southern Hemisphere, especially in Argentina and Brazil. Global maize consumption is anticipated to expand 2 percent, pushing the stocks-to-use ratio to 19 percent, 3 percentage points below last season but much higher than the 2010-12 lows.


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). .


A small drop in soybean production is expected to offset increases in cottonseed, palm kernels, and rapeseed. Despite the marginal weakening in current season grain supplies (which, for the most part reflect reduced planted area), there are adequate supplies for most food commodities this season. In two of the three key grains (wheat and rice), stocks-to-use ratios are projected to reach multi-year highs.


Cotton prices dropped over 6 percent in the third quarter of 2017 (q/q), eliminating the price increases earlier in the year .The price weakening reflects a surge in the current season’s global cotton production, which is forecast to reach 25 mmt, up from last season’s 23 mmt. The increased output is due to an expansion of areas under cultivation. India is anticipated to remain the world’s largest producer and is expected to reach 6.1 mmt due to an adequate monsoon and a higher minimum support price. In response to higher domestic prices, China, the world’s second largest cotton supplier, is projected to experience the first cotton area expansion in five seasons. After a projected surge of 13 percent in 2017, cotton prices are seen making only marginal gains in 2018, since the global market appears to be well-supplied.


Beverage prices, which are expected to tumble almost 8 percent in 2017, will climb only marginally in 2018 because of tightening coffee (Robusta) supplies. Raw materials prices, which are forecast to move up more than 2 percent in 2017, are projected to tick up even more in 2018 due to tight supplies of natural rubber. Overall, the agricultural price outlook is unrevised from April 2017. Disruptive weather at a global level is not expected during the current season. Fears of a La Niña cycle have not materialized. Thus far, subsidies to crop producers facing lower prices have been isolated events and have not skewed global prices. The large growth of biofuel production during the boom years (2005-11), which had a major effect on prices, is projected to slow. Fertilizer prices are expected to strengthen 3 percent on moderate demand growth, but new capacity could weigh on prices.


The World Bank’s Fertilizer Price Index rose 2 percent in the third quarter (q/q), but averaged 6 percent lower in the first nine months compared to the same period in 2016 Urea prices jumped 8 percent on strong import demand and tight supply. Phosphate TSP prices rose 2 percent and potash prices edged up 0.5 percent. Partly offsetting these gains, phosphate rock prices dropped 8 percent as new capacity added to oversupply, while phosphate DAP prices fell 5 percent on weak demand and oversupply. Fertilizer markets continue to face relatively weak global demand due to low crop prices. Markets remain well supplied with adequate stocks and growing low-cost capacity

Source: Source: Commodity Markets Outlook : A World Bank Quarterly Report, October 2017