(Wall Street Journal) – Food prices are likely to continue to fall for months as the world is reaping bountiful harvests.
Prices for soybeans, corn and wheat in particular could fall for the rest of the year, according to participants at the World Commodities Week conference in London.
The outlook is “pretty much bearish across the board,” said Benjamin Ross, a commodities portfolio manager at Cohen & Steers in New York.
He sees soybean prices in particular taking a sharp downturn. U.S. soybean futures slumped to their lowest level in four years last week as the U.S. harvest is widely expected to hit a record high in terms of yields.
Corn prices are also trading at very low levels because of a bumper crop, and that is also keeping the pressure on wheat prices. Wheat tends to move in line with corn since both are natural substitutes in animal feed.
Short of an unexpected surprise, such as an extreme weather event or a major geopolitical crisis, conference participants said it’s hard to see what could push prices higher.
“Just when we think we’re reaching a bottom in grains, prices move lower again. It’s hard to call,” said a dealer, who asked not to be identified.
The two exceptions are cocoa and sugar, where the outlook is more upbeat. Cocoa prices are up just over 16% so far this year, but much of that is based on speculation that crops in Africa will be affected if the Ebola virus spread into Ivory Coast and Ghana, the world’s top growers of the sweet beans.
The World Health Organization last week put the death toll from the Ebola outbreak at 2,811, with most of the casualties in Liberia, Guinea and Sierra Leone.
If the Ebola outbreak is brought under control, however, prices may slump. Ferenc Hosszu, a fund manager at Budapest-based OTP Fund Management Limited, warned the market may be close to peaking.
“I have started myself to reduce my long exposure to cocoa. Let’s remember, the market has indeed seen a very strong run up recently driven higher by fears surrounding Ebola, and it’s more than likely the market could correct lower soon should the virus not spread,” said Mr. Hosszu.
Longer-term, cocoa prices may yet hold up, as there are some concerns on the supply side, with many old cocoa trees needing to be replaced in Ivory Coast. In terms of demand, giants like China and India are seeing demand for chocolate soar as a growing middle class demands more confectionery.
The sugar market, meanwhile, may have bottomed out after a bountiful harvest from top grower Brazil. The low prices may mean Brazilian farmers turn to alternative crops instead.
“We’re at the point where farmers in Brazil will plant less sugar and favor soybeans should prices fall further,” said Greg Smith, a fund manager at Australian Global Commodities Limited. “Mills in Brazil are also slowing down now; it’s not cost effective to crush sugar anymore.”
