The specialist food and agribusiness bank predicts that headwinds, including a potential continuation or escalation in the US-China trade war, further increases in productivity on the back of more benign global weather, and the ongoing impact of African swine fever (ASF) will mean farmers continue to operate amid uncertainty in 2020 after years of relatively low prices.
The prices of grains and oilseeds next year will be driven by geopolitics, particularly trade wars, while coffee and sugar prices are likely to recover from decade lows, Rabobank forecasts.
• The soybean, the unlikely symbol of the US-China trade war, will continue to be at the mercy of the dispute. If an agreement is reached, China – which needs soybeans as it begins to replenish its ASF-ravaged pig herds – is likely to commit to buying large volumes of US agricultural products. Conversely, should trade tensions deteriorate, Beijing may cut US soybean imports, dealing a potentially devastating blow to US farmers. In that scenario, farmers in Brazil would benefit as China relies instead on the South American nation for its soybean imports.
• The oversupply of coffee, and low prices in 2019 have pushed millions of farmers – mostly in Central America, east Africa and Southeast Asia – into poverty. Strong production in Brazil, where farmers are helped by a weaker real, created a global surplus, meaning much of the world is selling coffee beans at below cost of production. But now Rabobank expects production outside Brazil to decline at a time of strong demand. Discerning consumers may be faced with a more limited choice of coffee.
• In the case of sugar, the market is rebalancing from large surpluses to the first deficit in four years following adverse weather in India and Thailand. Meanwhile, Brazil continues to maximise ethanol production over sugar.
Said Stefan Vogel, global strategist and head of agri-commodity markets at Rabobank: “There is no doubt that the world’s farmers have endured a difficult year with headwinds caused by geopolitical tensions, disease and weather. Yet sadly for them, 2020 looks like offering no immediate respite.
“In the worst-case scenario, coffee farmers face the prospect of stubbornly low prices while trade tariffs threaten soybean farmers. Taken together, these factors could severely worsen the economic situation of farms in various regions of the world.
“The hope is that the worst does not occur. In a more favourable scenario, the US and China resolve their trade dispute, China begins to replenish pork herds, stimulating demand for soybeans, and the coffee market rebalances, increasing the prices paid to farmers for their beans.”
Rabobank predicts a “significant risk” of a US recession in the second half of 2020. A downturn in the world’s largest economy could reduce global demand for consumer staples such as coffee and cocoa.
But the most notable effect could be a synchronised global slowdown, translating into weaker currencies in key commodity-producing countries, particularly emerging markets. This would put pressure on the prices of several key agri-commodities. A weaker Brazilian real, for example, would stymie the expected recovery in coffee and sugar prices.
Added Stefan Vogel: “In any given year there are many different factors at play affecting global commodity markets. But in an increasingly uncertain world, farmers and consumers alike are becoming accustomed to supply and price volatility. That situation is unlikely to change in 2020.”
Rabobank’s Outlook, this year titled Supply Slide Saves Grounded Demand, tracks the prospects for a basket of 10 key agri-commodities in the following year. It is widely read and followed in the world’s agri commodity markets. For more visit rabobank.com
Source: RabobankAuthor: COX