(Agrimoney) – Agricultural commodities are still overvalued, despite prices falling sharply in August, according to Macquarie, which saw no bullish signs evident across agrimarkets.
The bank issued bearish outlooks for all commodities, citing harvest pressure and a poor global economic outlook.
The current macroeconomic backdrop, dominated by worries over China’s downturn, and marked by emerging market currency devaluation, “appears to present more opportunities for excess supply in the market”, said Macquarie.
“Unless there is a major weather event across major producing regions, the path of least resistance looks to be further downside through September,” the bank said.
High production estimates issued by the US government, as well as worries about economic upheaval in China, sent most agricultural products sharply down in August.
In the short term, we struggle to find any strong bullish indicators across agri markets.
Favourable weather
Macquarie’s agricultural commodity price index fell 7% month-on-month , with all core index components down.
“With the weather now favouring crop development, and allowing uninterrupted harvesting, markets have lost the weather premium which helped to support prices over the past two months,” Macquarie said.
The largest falls in August’s Macquarie price index was for vegetable oils, down 12%, and sugar, down 10%. The animal feed index, which includes corn and soymeal, fell 8% while the staple grains index, which includes wheat, fell 4%.
‘Strong prospects’
Macquarie took a negative outlook on wheat prices.
“Harvest pressure will keep wheat prices subdued, as expectations for production losses in core exporting regions look unlikely to materialise,” the bank said,” citing strong prospects in the EU and Black Sea, and downplaying fears of El Nino associated drought in Australia
But the bank warned on the effects of dry weather in Canada.
Macquarie maintained a bearish corn output due to US crop estimates, but noted uncertainties on Ukrainian and EU production.
Depressed prices
Vegetable oil prices were also seen as likely to remain depressed in the short run.
“Without a serious weather event across the key producing regions, a recovery in the vegetable oil complex before 2016 is unlikely,” the bank said.
But Macquarie said that lower rapeseed production could squeeze vegetable oil supplies and support prices next year.
And for sugar prices, the bank warned that “neither economic nor fundamental factors look supportive for the market”.
Global sugar stocks are ample, and the bank also notes a bearish risk from the prospect of a sugar export subsidy in India, which could push more product onto a glutted global market.
