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Rabobank’s commodity outlook puts weather centre stage

By Sarah Hills , 26-Jul-2011

Elevated agricultural commodity prices will remain this season as unfavourable weather impacts production, offering little chance to replenish stocks, according to Rabobank.

In its monthly overview of the commodities market, Rabobank said: “Weather is currently the focal point for agricultural markets, supporting prices and increasing volatility.

“The tight supply of many products requires favourable conditions for production to replenish stocks and meet growing demand, but in many producing regions adverse weather conditions are threatening output potential, and markets are reacting by pricing in production risks.”

In Europe excess rain during harvest threatens to downgrade wheat quality for the second year running, the report states.

Hot and dry conditions in the US are “imperilling” the corn, wheat, soybean and cotton crops and the Brazilian sugar crop has been revised lower due to weather conditions.

The report adds that given low global inventories for almost all agricultural markets, weather and yield prospects are expected to continue to be a key driver of prices until harvests are well underway in the Northern Hemisphere.

Rabobank states: “There is simply not sufficient inventory levels in many markets to cope with below trend production which supports our outlook for prices remaining at elevated levels throughout the 2011/20112 season.”

Commodity breakdown:

Corn

The next two months’ weather in the US will predominantly influence price, which threatens Rabobank’s earlier forecast that prices over the coming season would ease.

Soybean

Soybean prices are likely to outperform corn, with lower than expected US production. US and global soybean ending stocks are expected to decline in 2011/12, which will “support prices in order to ration demand”.

Wheat

Russia has lifted its grain export ban (introduced in August 2010) which dragged world wheat export market prices lower in June.

However, they have since “recovered strongly” amid global weather concerns. This volatility is expected to continue as diverging forces impact the market.

Sugar

A surplus is forecast this season, albeit less than originally expected, but prices are still expected to ease. However, lower production output in Brazil is a major market concern.

Palm oil

Palm oil yields and production in Malaysia continued to grow in June, rising more than 20 per cent, year-on-year.

Rabobank expects palm oil’s “price discount” compared to alternative vegetable oils, such as soy oil, to persist and encourage higher end user demand.

Cocoa

Expanding crop estimates are expected to push prices downwards. Lower cocoa bean prices are likely to encourage buying but Rabobank said demand growth would be limited in Europe and North America.