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Rabobank Expects Stable Commodity Markets in 2014

Annual outlook projects relatively balanced year for most ag commodities

Published on: Dec 18, 2013

In its Annual Agri Commodity Outlook report, Rabobank on Tuesday indicated that commodity markets are expected to be stable into 2014, a change of pace from the past decade.

Record prices and extreme volatility, which have been staples of the ag markets since the early 2000s, Rabobank says, will likely be replaced by more balanced fundamentals and narrower trading ranges in 2014.

Overall, recent high prices have made it beneficial for farmers to increase planted acreage for grains and oilseeds, and with few production setbacks in 2013, production has outpaced consumption. Rabobank says while most of the price easing has already taken place, grains and oilseeds prices will continue some easing into 2014.

Annual outlook projects relatively balanced year for most ag commodities
Annual outlook projects relatively balanced year for most ag commodities

Specifically, outlooks for wheat and corn are mostly neutral, with corn leaning bearish on supply pressures. The outlook for soybean prices is heavily bearish on sustained global demand.

Aside from cooling prices, three key variables to watch in the coming year are slowing biofuel demand, uncertain Chinese demand growth and commodity currency weakness, the report suggests.

Biofuel demand

Rabobank analysts expect that the leveling of biofuel demand due to the maturity of the industry and in some cases "weaker political incentives" has allowed rebuilding of grain and oilseed supplies globally, a contrast to years previous in which biofuels demand grwe rapidly -- about 25% on an annualized basis.

While Rabobank says sugar-based ethanol will present a different story, analysts don't expect a material change in the current situation for grain and oilseed markets. Lower mandates appear more likely than not, they add.

Chinese demand

As biofuels demand begins to plateau, thus shifting price dynamics, Chinese demand will be a key player in agri-commodity markets in 2014, Rabobank says.

Self-sufficiency ambitions for several commodity markets have been relaxed with the understanding that they will be reliant on imports over the long run, the report says.

"However, the pace of imports will be driven by domestic supply trends, the rate of domestic demand growth and re-building of strategic reserves of grains and oilseeds," Rabobank says. "Recent season suggest that, barring a major economic slowdown, agriculture imports to China appear likely to increase again (for most commodities) in 2014."

Commodity currency weakness

Recent indicators that job security is improving in the U.S., and suggestions that the Federal Reserve is prepared to begin tapering its financial stimulus should start lending support to the dollar, Rabobank says, but it will take time for the Fed to halt its quantitative easing program, and even longer before it starts to tighten monetary policy settings.

A stronger dollar should appear during the second half of 2014. But, Rabobank says, the tapering prospect "poses a risk to emerging market and commodity currencies alike, with depreciation expected to drive producer selling opportunities across soft commodity markets, pressuring prices."