Rabobank, AgriCommodity Market Research, 24 February 2021
Our title is not a children’s fable but a reference to two major forces that have caused tightness in many agri commodities and pushed prices to multi-year highs.
La Niña upended weather in key producers like Brazil and Argentina and threatens to continue to cause havoc in 2021, as recent cooling of the Pacific seems to indicate it could continue for longer than expected.
Meanwhile, unprecedented and long-lasting import demand is being generated from China, which is celebrating the year of Ox. G&O exporters in particular will be stretched by Chinese and Covid-emergent global demand and farmers will maximize acreage in response. Strong harvests will not reflate G&O balance sheets but rather keep global demand from rationing… with low stocks volatility is likely.
Rabobank’s CBOT Wheat forecast is broadly maintained on damage from freezing and possibility of La Niña through spring. Freezing temperatures in the US have likely caused some winter kill damage. La Niña has the potential to strengthen in the spring and stick around longer than previously expected.
Record world demand and the impending battle for acres raise price risks beyond 2021. Staggering Chinese demand, with >6m mt of US corn bought last month –and more to come. Disruptive weather is pushing Brazilian farmers on the back foot and threatening safrinha corn planting.
Soybeans have turned to string beans amid Chinese buying frenzy. Brazilian rains helped improve soy production prospects but are now causing harvest delays. Chinese demand has made US soy barren. Soy must remain competitive with corn and grow acreage.
Relatively low Malaysian palm oil inventories will continue to support prices in Q1 2021. Malaysian Q1 2021 palm oil inventorieslower YOY. Indian 2021 palm oil demand growth maybe limited. The spread between palm oil and gas oil remains wide.
Logistical delays lead to steep backwardation. Raw Sugar continued its upside trend, but the start of the harvest in Brazil should alleviate the tightness. The upside is replicated in a number of commodities, but demand hasalso been very strong. Weather continues to be a little drier than normal in cane areas, increasing concerns about yields
We increase the price forecast for arabicas, but keep robustas relatively unchanged. Brazilian weather has been improving, but rainfall continues to be in deficit. Demand recovery may take some time. Delayed shipments from Vietnam and high shipping rates may result in robusta volatility.
Cocoa forecastmostly unchanged, with potential for a good 2021/22 crop. Good weather continues to boost West African crops, with the potential for a record crop in Côte d’Ivoire. Lockdowns and a Covid-19 resurgence in Q1 2021 will likely have limited further cocoa grind recovery.
ICE #2 Cotton broke above USc 90/lb on technical factors –fundamentals to lend support through 2021. Bullish factors: US dollar weakness, the volume of unfixed on-call mill sales, and demand urgency. Late-year price direction is set to be dictated by US 2021 acres and production.