Investors Cautious on Ag Prices Extending Strong Start to 2017

(Agrimoney) – Commentators are cautious on prospects for further gains in agricultural commodity prices in 2017, despite a strong start to the year, cutting price outlooks for most contracts – with oats a notable exception.

Commodities “experts” monitored by FocusEconomics have over the last month cut price expectations, for the October-to-December quarter, for five of nine agriculture contracts followed.

And of the four contracts in which price hopes were raised, only for two – Chicago oats and Australian wool – were the upgrades above 1%, and the revision for wool still envisages a decline in values ahead.

“Prices for most agricultural products will receive support from a global reflationary environment, stronger economic growth and rising energy prices,” said FocusEconomics senior economist Ricardo Aceves.

“Upward pressure may also come from the drawdown of inventories of most agricultural products this year after having accumulated stocks during a number of seasons in 2016.”

Dollar factor

However, expectations for value gains are muted, with ag prices are seen in the last three months of 2017 averaging 6.7% higher than a year before.

That would appear to indicate limited scope for further headway, with agricultural commodity prices have already gained 5.8% so far in 2017, according to the Bcom ag index.

That compares with the 5.8% headway already seen in 2017,

Indeed, price risks to the consensus outlook “are tilted to the downside,” Mr Aceves said, flagging potential headwinds from the likes of currency markets, and the stronger dollar which many commentators see likely this year.

A strong greenback weighs on value of dollar-denominated goods, such as many agricultural commodities, by making them less affordable to importers.

“Expectations of a persistently-strong dollar in 2017 and some ongoing volatility in exchange rates – particularly in emerging economies – should act as headwinds to a better performance in these commodities.”

Oats rally has legs?

Still, commentators foresaw marked potential for further gains in Chicago oats futures, with the consensus forecast for average prices in the last three months of 2017 hiked by $0.32 a bushel from December to $3.07 a bushel.

That is well above the $2.36 ¼ a bushel at which December futures were trading at on Wednesday.

“Prices will likely continue to rise due to unfavourable weather conditions in Canada, the world’s largest oats exporter,” FocusEconomics said.

According to officials the AAFC farm ministry, the Canadian oats harvest fell by 8% last year, although they put the decline down to smaller seedings, actually pegging the yield at a record high.

Cocoa price prospects

Cocoa futures were also seen having potential for gains, despite the consensus forecast for New York prices in the October-to-December quarter seeing a particularly large downgrade, of $377 a tonne to $2,422 a tonne.

That is still, however, well above the $2,255 a tonne at which New York’s December contract was priced at on Wednesday.

Cocoa futures have staged some revival so far in 2017, amid hopes that the low prices instilled late last year will encourage demand.

“The downward trend in prices stabilised at the outset of the year, though cocoa prices continued to trade at low levels on the back of strong crops in West Africa and high inventory levels in Europe,” FocusEconomics noted.

‘Prices to drop’

However, analysts are downbeat on prospects for sugar futures, with the consensus forecast for fourth-quarter New York prices dropping by 0.4 cents a pound to 19.2 cents a pound over the past month.

That is below the 19.83 cents a pound priced in to October futures.

“The elimination of sugar quotas in the European Union starting this year will likely boost supply and is expected to cause sugar prices to drop in the near future,” FocusEconomics said.

Among major grains, consensus forecasts for Chicago corn and wheat prices as of late 2017 are in line with current prices for December contracts.