Agriculture

23
Mar

What does 2017 hold for sugar futures?

Sugar futures have been one of the strong performers in 2016, but momentum has cooled in recent months.

Have markets factored in the tight stocks, and the expected global sugar production deficit?

Or is attention now ready to turn to the expected large production in 2018, thanks to the fading of delayed El Nino effect and better prices, stopping the rally in its track?

Commentators give their views for the year to come.

Commerzbank

The Brazilian sugar cane harvest will be a major factor, and so far forecasts are contradictory.

According to Datagro, for example, Center-South sugar production in 2017-18 should rise to 36.1 to 36.5m tonnes, from an estimated 34.1m this coming season.

Some 600m tonnes of sugar cane are expected to be processed, much in line with the last season.

However, the Brazilian sugar industry association Unica considers a decline in the sugar cane harvest for more likely, even in good weather conditions, because producers have invested too little in recent years in maintaining and upgrading their plantations.

[The] sugar market can be expected to remain sufficiently strained to justify prices close to 20 cents a pound.

We envisage a raw sugar price of 19 cents a pound in the last three months of 2017.

Societe Generale

We maintain our neutral view on sugar for the near term despite the recent fall in prices.

The commodity has lost some of its shine amid renewed weakness in the Brazilian real and the failure of La Nina to develop further.

We reiterate that, in the absence of fresh supportive fundamental/weather news, sugar prices should continue to move in relation to the competitiveness of swing producer Brazil.

We keep our sugar price forecasts unchanged.

Barring any adverse weather, we believe the sugar market will post a surplus of 3.5m tonnes in 2017-18, vs a deficit of 2.6mt in 2016-17.

However, global stock-to-use should fall from 19.6% in 2016-17 to 18.9% in 2017-18, similar to the level in 2010-11, when sugar prices touched 35.31 cents a pound.

Marex Spectron

Now everybody is trying to judge the ‘right time’ to buy.

But at the same time, everybody remembers during the bear market of the past five years, how wrong it was to go against the trend.

For what it’s worth, we think that the key to the market’s turning is going to be the ethanol parity in Centre South Brazil for the period of the next crop (say April onwards).

But the outlook for ethanol in Brazil is bullish (though its price is still tied to that of gasoline, which is sort of fixed). However, as a friend told us, ‘if Centre South Brazil sneezes, we all catch cold’.

So, if ever the world market for 2017 gets down to anywhere near what might be the ethanol parity, that would mean that the main plank of the bearish argument – a maximum swing to sugar production in CS Brazil next year – would be knocked away.

ISO

In a nutshell, assuming normal weather conditions in the coming 21 months, fairly balanced global production and consumption come into view, heralding a possible end of the deficit phase in the world sugar cycle in the next season.

In August, the ISO suggested that the 2016-17 fundamental situation provided a clear indicator to the world sugar market.

Values seemed to be poised for continuing strengthening.

The second season of significant statistical deficit with an anticipated massive 11.1m tonne drop in global inventories (over the two seasons) augurs well for strong world market values.

Any easing of price in reaction to expectations of a possible return of the world supply and demand to a more balanced scenario in 2017-18 may be muted due to a critically low level of stocks forecast by the beginning of the next October/September cycle.

Focus Economics

The impressive rally in sugar prices since the start of the year seemed to reach its ceiling at 23.30 cents per pound in late September and has declined slowly but steadily since then.

Sugar traded at USD 21.0 cents per pound on 4 November. The price was down 6.5% from the same day last month, it was 40.4% higher on a year-to-date basis.

The price was up 46.3% from the same day last year.

This year’s sugar price rally reflected slowing production in key producers, which is expected to cause a deficit in the sugar market.

The recent drop, however, revealed that market analysts are now focusing on a possible surplus in 2018, which has driven some speculators to exit the market.

Analysts expect prices to average 19.6 cents per pound in the last three months of 2017.

Cepea

Prices in the Brazilian market for sugar should remain high at 2017, supported mainly by estimates of the new global sugar deficit.

Despite the slight rebound projected in global 2016-17 production, up from 3% over the previous season at 171m tonnes, the volume should not be enough to meet demand, which is estimated at 174m tonnes, according to USDA figures.

As a result, the deficit could reach 2.6m tonnes of sugar.

According to the International Sugar Organization, this deficit could be even larger, reaching 6.2m tonnes.

Source : Agrimoney

16
Nov

Agricultural Commodities Trading Egged On by China’s Futures Frenzy

HONG KONG—The recent fevered commodities trading in China hasn’t been limited to iron ore. Investors have piled into futures for everything from wheat and cotton to eggs and asphalt.

As with industrial metals, analysts reckon much of the interest is coming from speculative investors who have been turned off to China’s stock markets by tighter rules over trading.

“Chinese speculators didn’t want to buy into the equity market with all the curbs, so they jumped into the commodity markets and it seems they’ve done so in massive style,” said Michael Coleman,managing director at RCMA Asset Management Pte.

Rampant speculation means Chinese futures markets often don’t reflect economic or industry fundamentals, while excess liquidity attributable to loose monetary policy is further driving the spike in interest in agricultural futures.

For example, turnover of corn futures traded on the Dalian Commodity Exchange was up by nine times in April from a year earlier, at around US$30 billion in value, according to data from the exchange. That is despite corn prices falling 10% after the Chinese government announced that beginning later this year it would stop setting prices, allowing market forces freer rein to guide prices.

Trading volume for wheat futures on the Zhengzhou Commodity Exchange has also rocketed by around nine times to roughly US$500 million over the same period, even though wheat prices are up just 1.2%.

The increased trading in egg futures in Dalian hasn’t been quite so dramatic, though volumes are still up 19% in April from a year earlier, meaning contracts for around 128.9 billion eggs changed hands in April alone.

To be sure, there are some tailwinds giving support to commodities prices in the coming months. Prices for grains, soybeans and other food commodities have recently risen in some markets, as weather conditions in Central and South America have raised concerns that supplies will tighten over the coming months.

Unlike the surge in investor interest in industrial metals, however, the impact of the rise in agricultural commodity prices “is unlikely to affect global prices” because the sector is much more insulated from international markets, said Tracy Xian Liao, an analyst at Citigroup.

Imports of agricultural products are tightly controlled and pricing regulations remainin place for some foodstuffs, such as rice and wheat.

Still, the rise in speculative trading in agricultural commodities has raised concerns within China. Exchanges there have raised transaction fees in recent days to try to temper the market.

It isn’t the first time China’s agricultural markets have worried regulators.

Various unofficial commodities exchanges have sprung up in China over the last decade offering retail investors the chance to trade on foodstuffs, including kiwifruits grown in Sichuan, dates from Xinjiang and mushrooms in Hubei.

Investors are able to trade online in most of these futures markets. Most require traders to settle trades with cash, instead of making delivery of physical goods an option. Contracts are usually designed to be affordable, with the minimum investment as low as 200 yuan (US$31) per lot.

Trading is often volatile in those markets and insider trading is common, analysts say.

A scandal last year at the Pan Asia Nonferrous Metals Exchange in Yunnan that cost 220,000 retail investors billions of dollars in combined losses drew widespread media attention and prompted a crackdown on unregulated commodities markets.

1
Nov

Americans’ Coffee Guzzling Is Pushing Bean Prices Higher

U.S. coffee drinkers are consuming more of the brew than ever, helping to send global coffee consumption to an all-time high and sending prices for the beans soaring.

World demand for coffee beans is poised to hit a record this year as people around the world are consuming more of the beverage, and Americans are leading the way. Global coffee consumption is expected to grow 1.2% over the next year starting in October, and American consumption is expected to be up 1.5% this year alone, reported Bloomberg. Coffee has also reached peak popularity in China, Japan, and India, which are expected to demand more java than ever locally.

“With the U.S. being the largest consumer, any demand growth there will create massive changes to the demand-supply balance,” Harish Sundaresh, a portfolio manager and commodities analyst for Loomis Sayles, told Bloomberg.

The high demand is leading to higher prices for the coffee beans. The price for arabica-coffee futures was up 20% in June, marking the biggest monthly gain since February 2014. Arabica-coffee futures now go for about $1.4565 per pound, and Citigroup estimates that prices could reach $1.50 by the second half of 2017. Prices for robusta coffee beans, which are used in instant coffee, are also up, gaining 4.2% last month.

 On top of that, some coffee plantations haven’t had a great year in Brazil, which could restrict supply and put even more upward price pressure on robusta beans. Coffee stockpiles have also been dwindling in the wake of increased global consumption. Warehouses monitored by the International Coffee Organization have seen their stores drop drop for 11 straight quarters. That kind of streak hasn’t been seen since 1995, when ICE started collecting data on coffee stockpiles.

“Between tight supply, potentially detrimental weather, and extremely strong global demand, especially emanating form the U.S., China, and India, that will continue to tighten coffee markets,” said Sundaresh.

31
Oct

Africa’s digital agriculture revolution

Digital technologies can improve agriculture in Africa as they have potential to significantly raise productivity of smallholder farmers, Fabian Lange, associate research officer at the Kofi Annan Foundation, tells Jarle Hetland. As part of the organization’s Combatting Hunger Programme, which advocates for the transformation of African agriculture to ensure food and nutrition security, he has seen first-hand how going digital is transforming the continent.

Hetland: How can digital technologies help to combat hunger in Africa?

Lange: Digital technologies such as mobile phones, satellites and big data provide unprecedented opportunities to integrate smallholders into food systems. Through mobile phones, for example, smallholders can receive rural advisory services tailored to their needs, access weather information in real time to adjust their planting and get market prices to negotiate efficiently with potential buyers. Digital technologies clearly have the potential to improve smallholders’ productivity and increase food security.

H: Can digital technology be made realistic, cost efficient and sustainable in rural and inaccessible parts of Africa?

L: Digital technology is becoming increasingly available and affordable in rural areas of Africa. Today, 75% of Africans own mobile phones and mobile networks are growing dramatically in rural areas, enabling a twoway communication between previously isolated smallholders and the other actors involved in the food system. As well as providing benefits to rural communities, many digital solutions are commercially viable and therefore sustainable in the long term. For example, M-Farm, a mobile phone-based market information and trading system, has been successful in giving Kenyan farmers access to market prices and connecting them directly with buyers.

H: What are some of the main challenges?

L: There are numerous digital projects throughout Africa in support of smallholder agriculture. One key challenge is scaling them up, which requires policy changes, investments and sustained effort from governments, private enterprises and NGOs. On the technical level, farmers need to be assigned ‘unique user identifiers’ so that they can actually receive services tailored to their specific needs. This has been done quite successfully in Nigeria, where the government has assigned identifiers to about 15 million farmers to provide input subsidies directly to farmers through its e-Wallet programme. We also have to ensure that digital applications are run on neutral platforms to which any farmer can connect, including the poorest and most vulnerable. For example, the Agricultural Transformation Agency of Ethiopia developed a digital soil map which is public and can be used by anybody.

H: What is the foundation doing to address the situation?

L: The Kofi Annan Foundation mobilizes political will to overcome threats to peace, development and human rights. Like with so many of the world’s issues, the knowhow to combat hunger effectively is already there. We therefore convene the big players from the private sector, government, the UN and civil society to pool their resources and make it happen.

With our partners we look to building the digital infrastructure in support of these African smallholders. We named our efforts here the African Food Systems Initiative, which aims to enable smallholders to turn their subsistence farms into profitable businesses while improving food and nutrition security across Africa.