LONDON (Commodity Online): Most agri-commodities will witness a drastic fall in prices in 2012 due to bleak macro-economic trends and lower base price effect, according to Barclays Capital. In the current environment, external markets, attitudes towards risk and views on the global economy are likely to stay in the driver’s seat, it said.
Agricultural prices have come under severe pressure over recent weeks driven by ongoing concerns over euro area debt, the health of the global economy, gyrating sentiment and selling pressure, which is well reflected in the relentless decline in CFTC non-commercial positions – which in many of these are now at their lowest in over a year, said Barclays Capital in a research note.
Barclays 2012 forecast graph for agri commodities market
Across the grains, Barclays has made modest downward revisions to our 2012 price forecasts but view these markets as having the strongest fundamentals within the agricultural complex. Bank expects a stronger H1 next year as the battle for acreage allocation heats up while fears over the impact of a La Nina remain.
Corn
Barclays expects corn to be the winner in terms of attracting 2012 US acres, but they believe the bearish impact of higher US production will be blunted by low inventories and strength in demand. In the nearer term, grains prices have over-reacted in the recent lurch lower. For corn, US and global inventories remain low, China has turned into a net importer, US ethanol production continues apace and US yields continue to be revised lower.
Wheat
In 2012 wheat prices may decline to 610/bushel from 631, according to Barclays in a report. Macro concerns aside, the wheat market could face additional pressure from improved crop conditions and export competition. The USDA stated that US winter wheat condition was 52% good to excellent, compared with 50% a week ago and 47% last year.
Meanwhile, It has been reported that Argentina's government approved an additional 2.7 mt of 2010/11 wheat for export, increasing the total to 11.1 million tons (mt). The agriculture ministry also raised its forecast for 2011-12 wheat production to 13.5 mt, up from the previous estimate of 12 mt. Further, Argentina's farmers are expected to grow 52-53 mt of soybeans during the 2011-12 season, the second-largest crop on record.
Cotton
The market poised to post the most marked y/y fall is cotton where Barclays has left their forecast unchanged at 86 cents/lb. Cotton prices are likely to come under further downside pressure with supply prospects looking robust in three of the world’s four largest producers, while the decline in prices. It is not likely to stimulate any significant pick-up in demand with current macro fears abounding and growth estimates being revised down.
Sugar
According to Barclays, across soft commodities, sugar prices are likely to test lower. Despite lower Brazilian output, the move to a larger surplus in 2011-12 is bearish for sugar prices as is India’s exportable surplus and strong production prospects in key Northern Hemisphere producers like the EU, Russia and Thailand.
Soybeans
China’s release of soybeans from state reserves, the cap on retail prices for edible cooking oils and negative crushing margins for much of 2011 have weighed on import demand. However, lower soybean acreage in 2011, the recent slide in international prices in addition to improved crush margins and a pick-up in seasonal demand are likely to bode well for higher imports into early next year.
