After slumping by more than 50% last year, corn, wheat and soybeans have rebounded by 20%-25% from their December lows. Yet, for now at least, the scope for any further gains looks limited. Investors have been looking forward to smaller harvests later this year. Drought-stricken Argentina, a key exporter, is on track for its lowest soy production in at least five years, reckons Pablo Adreani of Agripac.
Farmers in America are planting 9% less wheat this season and tight credit markets have hampered farmers’ spending on fertilisers, which also points to smaller supplies. The weather remains a “wildcard”, and smaller harvests could bolster prices later this year, says Javier Blas in the FT. But for now supplies don’t look too stretched, given last season’s record harvest – wheat inventories are at a six-year high. And as the UN has pointed out, the “key question for the near term is demand, not supply”.
Agricultural commodities aren’t nearly as recession-proof as investors assumed. Corn use will fall in America as ethanol consumption is down, while feedstock consumption is falling as “people, particularly in emerging countries, eat less meat”, says Gavin Maguire of EHedger. Bloomberg notes that purchase commitments for US wheat by overseas importers are down 27% year-on-year. Brazilian agricultural exports, according to one analyst, are set to slide by $15bn to $38bn this year. As the International Council for Grains says, the “immediate supply and demand outlook for grains remains generally bearish”.