April 19, 2016

19/04/2016: Commodities: Markets outlook

by John Buckley

First published in Milling and Grain, February 2016

Another year of cheap & plentiful inputs?

Forecasting prices even one year ahead can be a hazardous business. That applies especially to markets so dominated by that most unpredictable element of weather and, increasingly these days; the sometimes even more capricious influence of global economic trends – trade and GDP growth, currency volatility, the price of crude oil, etc.

Who would have thought that the latter would have halved for a second year running, with all the implications for using food crops as fuel? Also, many of the regular market outlooks come from crop producing countries - or from ‘outside’ investors – understandably skewed by wishful thinking to the price upside (Shell punting crude’s recovery prospects in mid-January seems a good example).

Also, consumers will naturally see the factors that will help input costs fall in a more friendly light. Forward futures markets are another guide to ‘price revelation’ but can also be heavily influenced by speculative interests working their own agendas. That said, these instruments are assumed to reflect the largest possible number of factors – known and likely sowing trends, weather patterns, trade policy, influences on demand etc.

Looking at the three biggest futures markets that dominate the headlines – Chicago wheat, maize and soybeans – this month suggests consumers don’t have much to worry about in terms of a significant rise in raw material costs – at least for this calendar year.

Further forward, around the spring and early summer of 2017, that view changes as prices begin to point ‘North’ a little more significantly (over 10 percent higher for wheat – a trend reflected in the EU wheat futures markets too).

Yet at this time last year, Chicago wheat was forecast to rise to the US$6.20’s per bushel and it’s recently been trading in the US$4.50s, Corn’s year-hence prediction was a bit closer in the US$4.40s (versus the US$3.60s now) while soybeans were way out, looking for over US$10 per bushel now against under US$8.80 actually trading as we go to press. 

Read the full article in Milling and Grain HERE.

The Global Miller
This blog is maintained by The Global Miller staff and is supported by the magazine GFMT
which is published by Perendale Publishers Limited.

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