As we entered 2024, what is the outlook of agricultural commodities? We spoke to Doug Christie, agribusiness executive and author of Agricultural Commodities Focus, for a breakdown.
Wheat: Tightening Balance
The wheat market is projected to have a global stock drawdown of 10 million metric tons. This tightening supply, coupled with renewed buying interest from traditional importers, paints a positive picture for the market. “The trade projections include a reasonably optimistic outlook for wheat flows from the Black Sea so any disruptions there could further tighten the global picture,” notes Christie. “Prices have recovered from lows of 2023 and that should hold, but I don’t see an explosive outlook.”
Read More: Global Ag Trade: A Fundamental Analysis
Corn: Rising Stocks, Price Stability
In contrast, corn finds itself navigating a potential stock build of 15 million metric tons for crop year 23/24, pushing ending stocks to the highest levels since 2018/19. This includes However, Christie emphasizes the nuances of this figure: “Although stocks are forecast to rise, I see limited downside risk from current prices. South America production is unlikely to surprise to the upside and if prices were to decline much further it would likely incent destinations like China to increase purchases and pull some stocks from origin to destination, supporting prices.”
Soybeans: Balancing Act
The soybean market is projected to have a global stock build of 14 million metric tons driven by a recovery in Argentine production. “The estimates include current crops growing in Brazil and Argentina so those figures are a large swing factor,” notes Christie, adding that the demand outlook should be solid with both meal and oil demand benefiting from an improved world economic outlook.
Read More: Commodity Supply-Side Information Sources
Current prices for soy are about halfway between the lows and highs of 2023, and there is scope for upside and downside movements from the current levels. As pointed out by Christie, “If the stock increase were somewhere other than Argentina, I would be a bit more bearish but two things help mitigate that – one is that Argentina exports their surplus as soy products so there is an inherent ‘demand-pull’ aspect to tapping that supply, and two is the overall uncertainty about Argentine policy. I don’t see them pushing stuff to market in a weak price environment.”
Sugar: Impact of Policy Changes
For sugar, the year ahead promises to be a ride on the policy rollercoaster. "Prices rallied on a view that India would convert sugar to ethanol and have since dropped dramatically when that policy idea was reversed," Christie points out. Despite a projected production increase of 8 million tons, he believes limited downside exists as most of the surprises are likely to be an increase in demand (food or fuel) in response to low price levels. He sees 20 cents as a likely floor for the market, with a return to 2023 highs requiring another policy shift or significant weather disruptions.
Cocoa: Bull Rally Plateauing
Cocoa has seen a strong rally, but Christie is cautious about its continuation. "Cocoa has been on a very strong bull rally throughout 2023. It will be difficult to see a continuation of that through 2024," he states. However, he acknowledges ongoing concerns about West African production, which could maintain tight market fundamentals.
Managed Money: Return of Investment Appetite
"Overall managed money positions have been reduced or short across the commodity spectrum," notes Christie. "That's not a normal situation, and with an improved global economic outlook, I would expect more money to come into the commodity space." This potential influx of investment capital, acting as a tailwind could significantly influence market movements, adding an exciting layer to the already complex interplay of individual commodity fundamentals.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
