Agricultural Commodity PriceOutlooks 2021

AN AGRIMONEY REPORT

by Mike Verdin

JANUARY 2021Request a Trial

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INTRODUCTION

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Agricultural commodities last year achieved

something not seen since 2016 – positive

returns.

Will they in 2021 accomplish what they have not

managed since 2010, in chalking up a second

successive year of gains? Certainly, we enter

the year with plenty of production concerns,

including dryness sapping South American corn

and soybean crops, as well winter wheat in

Russia and the US.

Brazil is suffering a rain shortfall which,

soybean-area adjusted, is the largest since at

least 2000, and which is hitting hopes for the

country’s 2021 output of coffee, cotton and

sugar too.

This when expectations of the retreat of the Covid-19 pandemic, as vaccination

programmes are rolled out, are fuelling hopes for enhanced demand.

How these factors, and more, play out on ag markets is debated by some of the best

brains in the sector, in Agrimoney’s second Agricultural Commodity Price Outlooks

briefing.

We hope you find it useful and thought-provoking, and look forward to continuing to

guide you as the story of 2021 unfolds.

Mike Verdin,Editor in Chief

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Introduction...................................................................................................................2

Cattle: Will live cattle futures return to winning ways?.................................................4

Cocoa: Will prices recover from their pandemic setback?...........................................7

Coffee: Will the market’s late-year rally extend far into the new year?......................11

Corn: Will futures achieve a fourth successive year of gains?...................................15

Cotton: Can prices extend their astonishing recovery?.............................................19

Dairy: Can the market’s price resilience last?............................................................23

Hogs: Will futures feel pressure from easing Chinese import needs?........................27

Palm Oil: Will prices maintain buoyancy through 2021?............................................30

Soybeans: Can futures extend their rally to six-year highs?......................................34

Sugar: Does the sweetener’s surprise price rebound have legs?.............................38

Wheat: Can futures notch up a, rare, fifth successive year of gains?........................41

What is Agrimoney?....................................................................................................46

CONTENTS

CATTLE: WILL LIVE CATTLEFUTURES RETURN TOWINNING WAYS?

4

Live catt le futures have recovered

signi f icant ly f rom pandemic lows, reached

dur ing Apr i l . But they remained one of the

worst ag performers of 2020 nonetheless,

losing 10.3% on a f ront contact basis, to

show their f i rst decl ine in a calendar year

since 2016.

The beef market fe l t part icular demand

pressure f rom the pandemic, as

consumers t raded down to cheaper

meats, whi le the hi t to US slaughter

capaci ty f rom Covid-caused abbatoir

c losures boosted suppl ies of fat tened

animals, and led Chicago pr ices in Apr i l

to their lowest in more than a decade.

The extended beef product ion cycle has

l imited the market ’s abi l i ty to curtai l

suppl ies in response to Covid-undermined

demand, whi le US beef exports - up 2.9%

for 2020 up to Chr istmas Eve - have not

seen the same boost as pork shipments,

whose strength fostered a more marked

recovery in lean hog futures.

Wi l l l ive cat t le pr ices return in 2021 to

the winning ways seen in 2017-19, or wi l l

demand cont inue to prove shy? Leading

commentators give their out looks.

Bank of America

The disrupt ions to the beef supply chain

take some t ime to correct i tsel f . I t takes

18 months to raise l ive cat t le, and when

issues in the supply chain prevent

farmers f rom having their animals

slaughtered, they start less new catt le

and this af fects the product ion of l ive

cat t le for years. Global product ion is

l ikely to recover somewhat in 2020-21

according to the USDA, albei t st i l l below

pre-Covid levels.

Demand for high protein food l ike pork

and beef has also l ikely dipped sl ight ly

dur ing the Covid-19 recession, yet is

recover ing faster than supply now that

we are looking into 2021 with opt imism

about a vaccine and cont inued economic

recovery. US export sales of both pork

and beef are up year-over-year in the

second hal f of 2020 and we expect

cont inued strong demand into 2021.

We are bul l ish on both l ive cat t le and

lean hogs in 2021 on the sequent ia l

demand recovery combined with supply

side response lags.

Live cat t le margins have recovered from

the slaughterhouse issues that

depressed catt le pr ices dur ing the start

of the pandemic, and with the t ime lag in

supply recovery into 2021 we see l ive

catt le pr ices and margins cont inuing to

improve from here. We see upside to

both lean hog and l ive cat t le pr ices, and

both also have mater ia l upside r isk which

we have not factored into the base case.

Goldman Sachs

We see the catt le market near a stable

equi l ibr ium at the start of 2021. With

producer margins remaining within their

f ive-year range and near- term supply

ample, we expect l ive cat t le to move

back to wi th in the seasonal range by the

second quarter of 2021.

Cattle: Will live cattle futures return to winning ways?

5

However, r isks of feedlot margin

compression under r is ing grains pr ices

point to t ighter suppl ies in the second

hal f of 2021. As a resul t , we forecast

pr ices of $112, $115, $125 per

hundredweight over the three-, s ix- , 12-

month hor izon.

We see a cont inuat ion of increased

placements through into the f i rst hal f of

2021 as on-feed inventor ies are forecast

to expand, leaving ample f ront-end

suppl ies of market-ready catt le. At the

start of 2021, we expect feeder margins

to cont inue to compress alongside r is ing

grains pr ices, s lowing the supply of l ive

catt le to feedlots and providing a mi ld

tai lwind to l ive cat t le pr ices in the f i rst

hal f of 2021.

From a demand perspect ive we see

internat ional demand cont inuing to

normal ise as major buyers ( including

Japan and Mexico) resume beef imports,

generat ing an addi t ional c i rca 2m tonnes

of exports a week by the end of the f i rst

quarter of 2021 on our forecasts.

Rabobank

Roughly 1m [US] feeder cat t le

placements were delayed in spr ing, as a

resul t of Covid-19- induced packing plant

disrupt ions, and the ensuing fed catt le

backlog. As a resul t , large feeder cat t le

placements in the second hal f of 2020

and ear ly 2021 wi l l culminate in 2021

feed slaughter reaching the largest head

count s ince 2010.

With 2021 fed slaughter up 4.6% year on

year, and carcass weights returning to

more normal levels, forecast 2021 total

beef product ion is up 1.5% year on year.

Cont inued beef cow herd l iquidat ion in

2020, and l ikely through 2021, suggests

reduced catt le suppl ies and beef

product ion form the second hal f of 2021

and beyond.

Pr ice upside wi l l h inge on food service

recovery, the handl ing of economic

chal lenges, and cont inued Chinese

import demand.

Steiner Consult ing

The US Department of Agr icul ture [ in i ts

latest Wasde report ] made minor upward

adjustments to beef product ion forecast

for the fourth quarter of 2020 and the

f i rst quarter of 2021, rais ing forecasts by

0.2% and 0.1%, respect ively.

However, USDA did make a s igni f icant

downward adjustment to expected beef

product ion for the second quarter,

lowering i t by 125m pounds or 1.8%

versus the forecast that was presented in

October and November.

The reduct ion l ikely ref lects the lower

placement numbers th is fa l l and thus

expectat ions for lower cat t le s laughter

next spr ing.

Futures already are ref lect ing some of

those expectat ions, wi th June fed catt le

current ly t rading near even with

February. Some of th is is also due to

expectat ions about demand this winter

and next spr ing.

The latest supply project ions appear to

support the v iew of more robust fed

catt le values next spr ing.

6

COCOA: WILL PRICESRECOVER FROM THEIRPANDEMIC SETBACK?

7

Cocoa futures went nowhere fast in 2020.

Whi le the New York contract ended the

year wi th in 3% of where i t started, that

disguises a range of more than $900 per

tonne traded over the course of 2020 – in

the main ref lect ing worr ies over the hi t to

demand from restr ict ions imposed to

counter Covid-19.

The bean recovered from a low of $2,137

per tonne reached in July on a spot

contract basis to a high of $3,054 per

tonne in November, before concerns over

the extent of new Covid cases, and

lockdowns, sent pr ices lower again.

London’s ster l ing-demominated cocoa

futures actual ly ended the year down

4.5%, al though that ref lected a late-2020

recovery in the currency, as Brexi t

negot iat ions bore f ru i t .

Are futures now poised for a f resh

recovery, as Covid vaccinat ion

programmes are rol led out? Or wi l l

enlarged stocks, and hopes for decent

West Afr ican product ion, keep pr ices

contained?

Leading commentators give their

forecasts.

Commerzbank

Uncertainty wi l l remain high in 2020-21. I f

demand remains weak, 2020-21 could end

with a substant ia l surplus. A surplus of

76,000 tonnes is forecast by broker

Marex Spectron. Since the start of the

season in October, a lmost 790,000

tonnes of cocoa beans have been

del ivered in Ivory Coast, 12% more than

a year ago. I f th is cont inues, i t would

more than compensate for the fur ther

decl ine in Ghana and also in Brazi l . But

whether th is wi l l happen is uncertain. I t

is feared that due to the below-average

rainfal l of late – even for the seasonal

dry season that is now prevai l ing in West

Afr ica – the crop volume could drop

sharply ear ly in 2021. There is also great

uncertainty on the demand side. I f g lobal

demand recovers, the balance on the

cocoa market could turn quickly.

We assume that demand wi l l p ick up

again in 2020-21 as the corona cr is is

subsides, so that r is ing supply could be

absorbed. For the end of 2021, we

expect the cocoa pr ice in New York to be

$2,550 per tonne.

FocusEconomics

Next year, pr ices are seen easing.

Stronger global output should lead top

buyers to purchase beans from the

physical market to ensure qual i ty and

support Afr ican farmers. That said,

volat i le weather condi t ions in West

Afr ica remain a key upside r isk. Our

panel l is ts forecast pr ices to average

$2,390 per tonne in the fourth quarter of

2021 and $2,480 per tonne in the fourth

quarter of 2022.

Fitch Solutions

We have revised our cocoa pr ice

forecasts higher out to 2024 as pr ices

have largely weathered the severe

decl ine in consumption (relat ive to t rend)

and as the LID ( l iv ing income

dif ferent ia l ) pol icy in West Afr ica… whichwi l l provide support to cocoa pr ices.

Cocoa: Will prices recover from their pandemic setback?

8

In 2020-21, we ant ic ipate the market to

return to balance as consumption growth

ul t imately rebounds and product ion

growth in West Afr ica remains steady.

As a resul t , the global market balance wi l l

return to a smal l def ic i t of 5,000 tonnes in

2020-21 before s lowly turning to bigger

def ic i ts.

In 2021, we ant ic ipate product ion to

rebound in Côte d’ Ivoire and Ghana,

dr iven by our expectat ion for better

weather condi t ions and the eventual

implementat ion of the LID scheme, which

wi l l resul t in regional growth accelerat ing

from 1.0% in 2019-20 to 2.9% in 2020-21.

We bel ieve that gr indings wi l l improve

into the f i rst hal f of 2021 as air t ravel

s lowly rebounds from a low base.

Our pr ice forecasts [2021 average of

£1,750 per tonne in London and $2,395

per tonne in New York] are below

Bloomberg consensus and mixed

compared to the futures curve.

Foresight Commodity Services

Weather condi t ions in Ivory Coast have

been general ly favourable in recent

months, wi th cocoa arr ivals up

substant ia l ly f rom a year ear l ier . The

larger cocoa arr ivals wi l l weigh on futures

pr ices in the months ahead.

The avai labi l i ty of a vaccine for

coronavirus wi l l l ikely boost economic

growth worldwide. The expanding

economies wi l l lead to stronger cocoa

demand and support cocoa futures pr ices

in upcoming months.

9

Nearby cocoa futures pr ices in December-

March are forecast to average $2,570-

2,645 a tonne compared with $2,616 a

year ear l ier .

For Apr i l -June, nearby futures pr ices are

forecast to average $2,500-2,575 a tonne

compared with $2,376 a year ear l ier .

Goldman Sachs

Cocoa demand has been largely hi t by

Covid-19, as a substant ia l port ion of

purchasing comes from travel lers (airports,

t ra in stat ions and tour ists) . Therefore, our

demand out look for 2021 remains

cont ingent on the widespread avai labi l i ty

of a funct ional vaccine.

We see a rebound in gr indings of 3% year

on year, leveraging a s imple model of GDP

growth, carry- in stocks and the futures

curve to t rack year-ahead gr indings.

However, wi th [Covid] cases r is ing

exponent ia l ly in the US and Europe, th is

support wi l l only come later in 2021, wi th

the global supply out look for 2021

increasingly bear ish, as ample rains and

sunshine aid West Afr ican crop

development.

We therefore expect downside to pr ices in

the f i rst hal f of 2021 unt i l g lobal t ravel

resumes, ref lected in our new forecast of

$2,350, $2,400, $2,500 per tonne over the

three-, s ix- and 12-month hor izon.

10

Increasing cocoa stocks wi l l keep as l id on

pr ices through 2021. Pr ices wi l l l ikely

trend lower, as commercial buyers l imi t

forward purchases due to high pr ices and

a high level of uncertainty regards the

Liv ing income di f ferent ia l levy.

Pr ices wi l l l ikely reach a low in the f i rst

quarter of 2021, as the [West Afr ican]

main crop comes in.

Rabobank

As lockdown measures t ighten in many

regions, and the economic impact of the

pandemic cont inues to be fel t across the

world, cocoa demand wi l l cont inue to

struggle, compared to 2018-19 levels.

A return to normal economic act iv i ty f rom

mid-2021 onward wi l l help l i f t demand for

the thi rd quarter of 2021. Demand should

increase by around 1.6% year on year in

2020-21, and by 2.3% year on year in

2021-22.

We ant ic ipate product ion to increase by

3.9% year on year in 2020-21, as the

current La Nina might cause the West

Afr ican harmattan to be mi lder than usual .

COFFEE: WILL THE MARKET’SLATE-YEAR RALLY EXTENDFAR INTO THE NEW YEAR?

11

Coffee pr ices ended 2020 pret ty much

where they began i t .

But they ranged widely in-between, f rom

92.70 cents a pound to 134.50 cents a

pound for New York arabica futures, on a

spot contract basis, and $1,073 a tonne

$1,556 a tonne for London robusta

futures.

And – unl ike most other ags, which

showed more or less a v-shaped recovery

from Covid lows – cof fee futures, and in

part icular arabica ones, moved in a

ser ies of cycles, inf luenced by factors

such as shi f ts in the Brazi l ian real ,

movements in exchange inventor ies, and

changes in ideas of the demand hi t f rom

Covid-19.

Late in 2020, growing worr ies over

Brazi l ’s 2021 harvest, for which

prospects have been undermined by

dryness, spurred a pr ice upswing.

Wi l l th is f ind legs in 2021, or suppl ies

prove abundant enough to keep a l id on

pr ices? Leading commentators give their

v iews.

ABN Amro

Dry weather in Brazi l is the main concern

in the coffee market. Bad weather, strong

f luctuat ions in stocks and exchange rate

effects led to strong pr ice f luctuat ions.

The fundamental p icture in the coffee

market remains unfavourable. Pr ices wi l l

remain relat ively weak.

Archer Consult ing

In the short term, the September 2021

arabica contract cont inues with strong

resistance at 132.60 cents per pound.

We bel ieve that i f the market breaks the

f i rst resistance, we wi l l see the market

going to 135 cents per pound and then

150.00 cents per pound.

We are st i l l concerned about the next

[Brazi l ian] crop, 2021-22.

Producers have withdrawn from the

market, fearful for the next harvest.

Several producers have already sold a

large part of their product ion between

R$550-680 per 60-ki logramme bag.

Those who sold below R$600 per bag are

concerned and looking to renegot iate

their sales wi th buyers, or t ry ing to carry

out “wash-out” operat ions (repurchasing

part of what was sold), and/or looking for

al ternat ives to protect themselves i f

some new fact adds more fuel to the f i re.

We remain bul l ish, as the fal l in

[Brazi l ian 2021] output wi l l be

signi f icant, wi th banks and brokers

already indicat ing a product ion between

50m-55m bags, and the funds having

room to increase the long posi t ion.

We bel ieve that Brazi l ian producers wi l l

not have much ammunit ion to sel l

because many have already f ixed and

already made forward sales of a large

part of their product ion for the next

2021-22 and 2022-23 harvests.

Coffee: Will the market’s late-year rally extend far intothe new year?

12

Commerzbank

For 2021-22 a much smal ler crop is

expected in Brazi l , as th is is a low yield

year in the two-year cycle for arabica

coffee and wi l l a lso be af fected by the

excessively dry condi t ions dur ing the

f lowering phase.

There are st i l l few forecasts, but a

"signi f icant" decl ine is expected.

A minus of more than the 10%, which

Conab considers to be the average

f luctuat ion between high and low yield

years, is therefore l ikely. Many observers

expect a decl ine in y ie lds twice as severe

as usual .

Coffee trader Volcafe even expects a 33%

decl ine in Brazi l ’s arabica crop and a

signi f icant market def ic i t in 2021-22. The

qual i ty of the beans could also suf fer f rom

the drought. Therefore, there is a

medium-term t ightening ahead, especial ly

i f the corona restr ict ions are to be l i f ted.

We expect an arabica pr ice of 130 cents

per pound and a robusta pr ice of $1,300

per tonne in the fourth quarter of 2021.

FocusEconomics

Coffee pr ices are seen r is ing in 2021 on

expectat ions of lower Brazi l ian supply due

to unfavourable weather condi t ions, and

increasing further in 2022.Our panel l is ts

expect pr ices to average 114 cents per

pound in the fourth quarter of 2021 and

118 cents per pound in the fourth quarter

of 2022.

Goldman Sachs

We expect pr ices to appreciate f rom the

13

second hal f of 2021 given an expected

V-shaped recovery in cof fee demand, at

c i rca 1.1% year on year for 2021 (af ter a

0.9% fal l in 2020). The EU and US –

core consumers of h igh-grade arabica –

are seeing imports r ise wi th next year ’s

Brazi l ’s ‘of f year ’ in cof fee product ion. In

fact , La Nina presents upside r isks to

pr ices, as dr ier Centre South Brazi l ian

weather is causing f lowers to wi l t across

Minas Gerais – a leading indicator for

fa l l ing y ie lds.

This presents mater ia l upside r isks to

our three-month and six-month forecasts

of 135-145 cents per pound that are

above market forwards.

In the long-run, we see potent ia l for

fur ther upside given bui ld ing supply

threats due to Covid - worker- intensive

harvest ing processes have been stymied

by lockdowns, al lowing coffee borer to

at tack plants.

Coffee rust is fur ther damaging harvests

in Central America as low coffee pr ices

ensure farmers do not have the funds to

invest in the herbic ides required to t reat

i t .As a resul t , we update our forecasts to

112, 120, 135 cents per pound over the

three-, s ix- , 12-month hor izon.

Rabobank

A big surplus in the current season wi l l

keep a l id on coffee pr ices, but short-

term volat i l i ty is l ikely. We est imate a

global surplus of 10.2m bags in 2020-21,

fol lowing by a 2.2m-bag surplus in 2021-

22.Brazi l is expected to have a record

off-cycle [crop] in 2021-22 of 60.7m

bags,40.5m bags of which arabica.

The weather pattern has not been

excel lent , wi th dr ier- than-normal weather

dur ing the dry season. St i l l , when the

rains returned in force, the resul t ing

wave of f lowering was gigant ic.

On the washed arabica f ront, we expect a

smal l , 0.5m-bag increase in product ion in

2020-21, wi th volumes remaining fair ly

stable in 2021-22.

Honduras and Colombia should more

than of fset the decl ines in other washed

arabica producers.

The huge increase in Brazi l arabica

avai labi l i ty f rom the last crop and

14

aggressive di f ferent ia l sel l ing wi l l resul t in

more Brazi l ian cof fee being incorporated

in blends, f reeing more washed coffees to

the internat ional market.

On the robusta s ide, we expect a good

recovery in Brazi l ian coni l lon in 2020-21,

but the recovery in Vietnam wi l l be a l i t t le

more pr ice dependent,

At the moment, ra infal l has been excessive

- a s i tuat ion which is l ikely dur ing La Nina

– so reservoirs are current ly fu l l to the

br im, and ready to support the crop in

2021.

CORN: WILL FUTURESACHIEVE A FOURTHSUCCESSIVE YEAR OF GAINS?

15

I t seems ages since Apr i l , when corn

futures touched $3.01 a bushel on a spot

contract basis, matching their lowest

since 2009.

At the $4.84 a bushel at which they

ended December, they had recovered by

60%, and set a s ix-year high.

The behaviour ref lects in part the two

sides to corn demand – wi th the ear ly-

2020 downswing in pr ices related to i ts

use as an ethanol feedstock, and with

energy markets very much out of favour.

The revival , meanwhi le, has been spurred

by corn’s use in l ivestock rat ions, and

China’s growing needs for grain to feed a

hog herd recover ing fast f rom i ts Afr ican

swine fever devastat ion.

A somewhat disappoint ing US harvest,

and worr ies over output ahead in

dryness-bl ighted South America, have

helped corn pr ices too. Wi l l futures

extend their headway in 2021 to record a

fourth successive year of gains, for the

f i rst t ime since 2012? Leading

commentators give their forecasts.

Bank of America

This spr ing when farmers plant for the

2021-22 crop, we wi l l l ikely see strong

growth in acreage as farmers are facing

the best corn margins in seven years.

The US wi l l l ikely hi t new record corn

product ion in 2021-22.

Meanwhi le in Lat in America, La Nina

correlates wi th excess dryness dur ing the

growing season, Next year, however, La

Nina should be over and Latam

producers wi l l once again l ikely plant an

even larger acreage of corn. With a 7m-

tonne boost to Latam product ion and 25

m-tonne boost to US product ion in 2021-

22, we expect to see world corn

product ion surpassing 1,180m tonnes in

2021-22.

Consumption is also growing, albei t not

that fast and we expect around 10m

tonnes of demand growth in 2021-22.

The corn balance wi l l l ikely push into

surplus in 2021-22 for the f i rst t ime in

f ive years, and thus we are bear ish corn

pr ices in 2021.

Commerzbank

China’s demand is very dynamic.

Chinese corn imports are therefore l ikely

to be signi f icant ly higher than usual in

the coming years.

The fact that China imported almost 8m

tonnes from January to October, twice as

much as in the same per iod last year,

might only be a foretaste of future

volumes.

High pr ices should lead to a larger area

being cul t ivated with the main crops in

the coming season in the US. The

relat ive pr ice rat io of corn to soybean

has shi f ted in favour of the lat ter , a lbei t

not massively. However, th is is suf f ic ient

to let the A forecast a s igni f icant shi f t in

acreage.

The US Department of Agr icul ture

assumes that in 2021-22, 90m acres wi l l

be planted with corn, 1m acres less than

Corn: Will futures achieve a fourth successive yearof gains?

16

2020-21. The A in i ts f i rst est imate

expects a crop of 14.89bn bushels (378m

tonnes). This would be an increase of

2.6%, but would remain below the record

level . That there wi l l be an increase in US

stocks then is rather unl ikely in v iew of

the high demand. For the fourth quarter

of 2021, we expect a corn pr ice in

Chicago of $4.20 per bushel .

FocusEconomics

Demand for corn has remained strong

recent ly on soar ing purchases from

China. Chinese corn imports have been

steadi ly r is ing as the country t r ies to

sat isfy increased demand from the hog

industry as farmers rebui ld their herds

fol lowing the Afr ican swine fever

epidemic.

Corn pr ices are seen dipping from their

current level next year, as they have

l ikely got s l ight ly ahead of fundamentals

fol lowing such sharp gains recent ly.

Moreover, Chinese purchases could ta i l

of f as demand from the hog industry

normal ises.

FocusEconomics analysts see pr ices

averaging $3.99 per bushel in the fourth

quarter of 2021 and $4.06 per bushel in

the fourth quarter of 2022.

Goldman Sachs

Expectat ions of a record 2020-21 US corn

carry-out were s lashed in recent months

by bad weather and a Chinese export

surge, wi th the US corn balance facing i ts

largest def ic i t s ince 2010-11.

Potent ia l downside to US, Argent ina and

Brazi l corn product ion est imates, and

upside r isks to exports to China, leave

r isks of fur ther t ightening.

Whi le weather r isks may prove transient,

the shi f t in the demand picture is l ikely

to persist in coming years in our v iew,

underscor ing the shi f t in the agr icul ture

cycle af ter s ix years of benign weather

and lacklustre demand. In part icular, the

US-China trade wars and the Afr ican

swine fever pork epidemic in China

depressed both China’s consumption and

imports in recent years, something we

bel ieve is now set to reverse.

We see total Chinese corn imports r is ing

to 33m tonnes (1.3bn bushels) in 2021,

and up to 55m tonnes by 2023 as

China’s structural def ic i t in corn grows.

Our once-again raised forecasts of

$4.35, $4.50, and $4.35 per bushel over

a three-, s ix- , 12-month hor izon are as a

resul t most ly above the forward curve on

deferred contracts.

Rabobank

Looking ahead to 2021, fa l l ing global

stocks and growing feed grain demand

form sturdy footholds for Chicago corn

above $4.00 a bushel .

The 2021-22 season wi l l provide an

opportuni ty for major exporters to

respond to the r isk ral ly wi th increased

plant ings, which should mol l i fy

aggressive funds and concerned

consumers.

St i l l , g iven strong pr ice compet i t ion f rom

soy, wheat and other feed grains,

farmers wi l l have l imi ted scope to

17

expand corn acreage next year in order to

meet growing demand. Suppl ies wi l l

remain under pressure through at least

2022.

Our base forecast sees the post-Covid-19

inf lat ionary environment support ing

Chicago corn pr ices near $4.50 a bushel

in 2021, as the sharp recovery in wor ld

feed demand, led by China, stretches

global corn (bar ley and sorghum)

suppl ies th in and leaves major producers

playing catch-up.

China dons i ts mant le of leading grain

importer in 2020-21, buying 24m tonnes

of corn ( in addi t ion to 10m tonnes of

sorghum and bar ley) to address animal

feed demand and rapidly decl in ing

domest ic corn reserves.

The US, Ukraine and South America wi l l

expand 2021-22 product ion by 27m

tonnes, but the global backdrop of strong

grains and oi lseed demand wi l l keep US

and global stocks-to-use under pressure.

University of I l l inois

The large export sales to China are a

major reason for lower projected [US]

ending stocks and higher pr ices for corn

and soybeans in the 2020-21 market ing

year. A major quest ion to consider is

whether th is phenomenon wi l l cont inue

into 2021-22 and beyond, especial ly for

corn where US export sales to China

were negl ig ib le pr ior to the current

market ing year.

China can meet burgeoning corn demand

in three ways: growing domest ic

product ion, increasing imports, and

reducing stocks. Beyond the current

market ing year, i t is l ikely to do al l of

these. Even so, US corn exports to

China wi l l l ikely be higher than in

previous years.

Market incent ives… c lear ly favourplant ing soybeans over corn. For

example, the soybean/corn pr ice rat io for

new crop 2021 futures has been above

2.5 for some t ime, compared to a

breakeven rat io around 2.3.

We expect planted corn acreage in 2021

wi l l fa l l 1.1m acres to 90.9m acres.

At t rendl ine y ields, th is wi l l resul t in a

corn crop of a lmost 15bn bushels.

This sets up a very volat i le scenar io for

2020-21. Even with product ion at the

projected levels, the current s ize of the

demand base for corn and soybeans

impl ies that i t wi l l be di f f icul t for ending

stocks to increase substant ia l ly in 2020-

21.

The rol ler-coaster r ide in the grain

markets is unl ikely to end anyt ime soon.

18

COTTON: CAN PRICES EXTENDTHEIR ASTONISHINGRECOVERY?

19

Cotton, as an industr ia l ag, fe l t the fu l l

force of the economic j i t ters stemming

from the Covid-19 pandemic. Af ter in mid-

January set t ing an eight-month high of

71.96 cents a pound, pr ices plunged

below 50 cents a pound in Apr i l for the

f i rst t ime since 2009 in New York on a

spot contract basis, amid concerns over

impover ished consumers holding back on

new clothing.

However, pr ices recovered to to end 2020

up 13.1% at 78.12 cents a pound, gaining

for the f i rst year in three, wi th demand

not col lapsing qui te as far as in i t ia l ly

feared, whi le weather has setback

product ion in the l ikes of Brazi l , Pakistan

and, notably, the US, where a record

hurr icane season ravaged the cotton bel t .

Can futures cont inue their headway in

2021?

Or wi l l hopes of a recovery in product ion

ahead, and compet i t ion f rom art i f ic ia l

f ibres rendered cheaper by weak oi l

pr ices, weigh on values? Leading

commentators give their assessments

below.

Abares

The world cot ton pr ice is forecast to

average 73 cents per pound in 2020-21,

12% below the f ive-year average in real

terms. This forecast has been revised up

by 6 cents per pound [s ince September]

due to strong import purchasing in China

and downgrades to the US cotton crop.

Cotton pr ices are forecast to be 2%

higher than in 2019-20 due to lower wor ld

product ion and improved mi l l demand.

High stock levels resul t ing f rom

interrupt ions to cot ton mi l l operat ions

wi l l cont inue to maintain a low-pr ice

environment, wi th intense compet i t ion

between exporters on the world market.

Commerzbank

Unl ike for the wor ld as a whole, where

exports are expected to be higher in

2020-21 than in 2019-20, th is does not

apply to the US. But th is is also due to

i ts lower product ion. Higher exports are

l ikely to come mainly f rom India, Brazi l

and Austral ia. However, the US is

benef i t ing f rom higher demand from

China, part ly because of the Phase 1

agreement, which future US President

Biden also wants to st ick to.

China is now again by far the number

one importer. In i ts in i t ia l est imates for

2021-22, the USDA assumes that US

cotton product ion wi l l be s imi lar to the

current level , but only because the

abandonment rate is assumed to be

lower.

In fact , the acreage sown, and yields,

are expected to be sl ight ly lower.

Demand wi l l probably pick up. As a

resul t , US inventor ies should then fal l

af ter stagnat ing in 2020-21, which should

support pr ices. However, product ion in

some other countr ies could increase

after the disappoint ing harvests th is

year. We expect a cot ton pr ice of 72

cents per pound at the end of 2021.

Cotton: Can prices extend their astonishing recovery?

20

Fitch Solutions

A number of factors are current ly

support ing cot ton pr ices, in spi te of weak

under ly ing demand for text i le and

therefore cot ton.

First , most important to the ICE cotton

market, the out look for the US 2020-21

cotton crop has deter iorated in recent

months. Second, China has been

boost ing purchases from the US since the

second quarter of 2020 in order to fu l f i l

the US-China phase one trade deal

import obl igat ions, s igni f icant ly exceeding

market expectat ions in January

surrounding the success of the deal .

Meanwhi le, there are some concerns over

crop qual i ty coming from Xinj iang this

year and the unoff ic ia l Chinese ban on

imports f rom Austral ia, which is also

pushing import demand for US cotton.

Third, prospects for cot ton product ion in

a number of secondary producers have

worsened in recent months, including in

Brazi l , Pakistan and Turkey.

Therefore, we now forecast an even

smal ler surplus in 2020-21 of 1.5mn bales

as compared with our previous pr ice

forecast f rom August of 3.9mn bales. This

should keep pr ices relat ively supported in

the coming months. We now expect

cotton pr ices to average 70.0 cents a

pound [ in 2021].

FocusEconomics

Prices are seen weakening somewhat in

2021, l ikely due to a s lower recovery in

text i le industry and despi te expectat ions

of lower US supply, before r is ing in 2022.

21

Our panel l is ts project pr ices to average

70.3 cents per pound in the fourth quarter

of 2021 and 73.6 cents per pound in the

fourth quarter of 2022.

Goldman Sachs

In 2020, cot ton demand fel l as global

apparel imports dropped across the

developed world (US -55% in May, the UK-

EU -40%, Japan -40%). Alongside other

softs, we see cotton demand growing in

2021 as global growth rebounds.

Al though Chinese state stockpi les are at

target, our economists ’ above consensus

growth forecast points to a strong rebound

in cot ton usage, wi th mi l l use for 2020-21

projected up 12%.

At the same t ime, we see global

product ion fa l l ing 5% year on year to 116m

tonnes, pushing the world into a 3m tonnes

def ic i t for 2021. Dry weather across the

US south – exacerbat ing by the

strengthening La Nina – has pul led down

cotton product ion.

With the global supply out look t ightening,

we see world cot ton stocks being run down

over the next year and a cycl ical r ise in

pr ices throughout 2021.

As a resul t , we forecast 73 cents a pound,

74 cents a pound, 75 cents a pound over

the three-, s ix- , 12-month hor izon.

International Cotton Advisory

Committee

I t seems as though cotton pr ices have

been under pressure forever - certainly

since the pandemic began - but a

projected reduct ion in global product ion,

f rom 24.9m tonnes to 24.7m tonnes,

could ease that pressure s l ight ly due to

lower year-ending stocks in 2020-21.

Whi le the recovery of consumption has

been slow and is expected to remain

steady at 24.3m tonnes next season,

global t rade is expected to do more than

improve - i t ’s expected to exceed pre-

Covid levels, reaching about 9.4m tonnes.

In terms of pr ices, the secretar iat ’s

current pr ice project ion for the year-end

2020-21 average of the Cot look

A Index is 69.4 cents per pound this

month.

Rabobank

Global cot ton consumption is set to

recover 11% in 2020-21, as the Covid-19

pandemic devasted clothing retai l in

2020. St i l l… i t won’ t be unt i l the 2021-22season that global demand returns to pre-

pandemic levels, r is ing a fur ther 5% year

on year to reach near ly 119m bales.

22

Recover ing 2020-21 demand prospects are

met wi th a 6% year-on-year fa l l in global

product ion, to below 115m bales.

Rabobank forecasts a recovery in wor ld

product ion, to 121m bales, taking world

excluding China stocks to a record 69m

bales.

St i l l , recover ing demand wi l l keep the

world stocks-to-use consumption rat io at a

forecast 87%, down from record 2019-20

highs.

For the US, Rabobank forecasts a

marginal year-on-year r ise in 2021-22

planted area, to 12.5m acres, resul t ing in

19.4m bales in product ion.

Heavy Chinese imports – forecast at 9.2m

bales and 10m bales in 2020-21 and 2021-

22 respect ively – wi l l cont inue to support

US exports and New York pr ices.

DAIRY: CAN THE MARKET’SPRICE RESILIENCE LAST?

23

Dairy pr ices beat worst fears by a

distance in 2020.

As a market in which supply is t r icky to

adjust , the demand threat posed by Covid

boded part icular ly badly for dairy pr ices –

which indeed plunged by more than one-

quarter in the two months to late March,

in terms of spot NZX whole mi lk powder

futures.

However - backed by factors including

record dairy cow slaughter rates in the

US, government support programmes and

in part icular the faster- than-expected

economic recovery in top dairy importer

China – markets managed a strong

recovery f rom spr ing lows.

Broadly, pr ices ended 2020 in many

cases in posi t ive terr i tory for the year,

wi th whole mi lk powder futures up 5.5%

and the GlobalDairyTrade index up 1.3%,

al though Chicago Class IV mi lk futures,

for instance, shed 17.9%, and Class I I

pr ices some 16%.

How wi l l pr ices perform in 2021? Wil l

e levated feed costs constrain output,

whi le the retreat of Covid boosts demand,

to prop up pr ices? Leading analysts give

their v iews on what l ies ahead for dairy

commodity and mi lk pr ices ahead.

Abares

The world butter pr ice is forecast to fa l l

by 13% to $3,879 per tonne in 2020-21,

revised upward since the September

forecast.This is due to a reduct ion in the

quant i ty of but ter sold on the

GlobalDairyTrade plat form by

Fonterra New Zealand and a subsequent

l i f t in pr ices.

Whole mi lk powder is forecast to fa l l by

4% to $3,179. The cheese pr ice is

forecast to fa l l by 5% to $4,021 per

tonne, and skim mi lk powder is forecast

to r ise by 2% to $2,798 per tonne. The

farmgate mi lk pr ice in Austral ia is

forecast to average 47.9 Austral ian

dol lar cents per l i t re in 2020-21, down by

9% from high levels in 2019-20.

Increased mi lk product ion in Austral ia is

expected to ease compet i t ion between

processors for mi lk supply. Domest ic

pr ices wi l l fa l l in 2020-21, in l ine wi th

lower wor ld pr ices. Global demand for

dairy products has recovered fol lowing

the dampening ef fect of Covid-19

containment measures. However,

increasing global supply is expected to

outweigh a better- than-expected

recovery in demand.

ASB

Global demand is st i l l holding up wel l ,

providing support for dairy pr ices. For

whole mi lk powder… the last few month’sgains mean pr ices [at GlobalDairyTrade]

have now edged ahead of where they

were a year ago - just on $3,200 per

tonne. Recent auct ions have been

marked by strong demand from China

amid the recovery there, and the

cont inued focus on food secur i ty.

Pleasingly, the contract curve remains

f lat and stable, so pr ice gains aren’ t

being dr iven by short- term supply fears,

but by steady demand thanks to r is ing

consumption.

Dairy: Can the market’s price resilience last?

24

The futures market is pr ic ing whole mi lk

powder north of the $3,200 per tonne out

to the end of the [2020-21] season too.

ASB is l i f t ing i ts New Zealand farmgate

mi lk pr ice forecast for the season to

NZ$7.00 per k i logramme of mi lk sol ids.

The big factor to watch now is product ion

over the [southern hemisphere] summer,

as the weather heats up.

Our forecast revis ion is s ign of how

resi l ient the dairy sector has been

through the pandemic. Back in March, at

the height of Covid-related uncertainty,

we thought there was a r isk the mi lk pr ice

could go below NZ$6.

BNZ

Covid vaccine hopes have buoyed r isk

appet i te, and the prospect of bet ter

medium-term economic condi t ions.

I t br ings the potent ia l for bet ter dairy

demand and pr ices ahead. There are

already signs of th is demand with the

number of unsat isf ied bidders in the

ear ly-December GlobalDairyTrade auct ion

reaching i ts highest level s ince Apr i l

2019.

That is not to say that there are not

mater ia l r isks st i l l c i rculat ing. Covid

hasn’ t gone away and is st i l l causing

mater ia l d isrupt ion in many parts of the

world including in the food service

industr ies and across supply chains.

Global mi lk supply has been growing, but

not excessively so. New Zealand mi lk

product ion in October was only 0.3%

higher than a year ago, a marked slowing

25

as some areas got a bi t dry af ter what

was a strong start to the season. Recent

rain should see mi lk product ion

comparisons to a year ear l ier improve

somewhat ahead. Our forecast for New

Zealand mi lk product ion for the ent i re

season remains at a touch over 1%.

Developments to date see us nudge up

our forecast for Fonterra’s 2020-21 mi lk

pr ice to NZ$7.00 per k i logramme of mi lk

sol ids, f rom NZ$6.80 previously.

Fitch Solutions

We are maintaining our 2021 mi lk pr ice

forecasts at $17.05 per hundredweight

[ for Chicago Class I I I mi lk futures] . We

cont inue to expect global mi lk product ion

growth to accelerate in 2021, but there

wi l l be considerable volat i l i ty in the

market because of the coronavirus.

For now, we forecast aggregate

product ion growth among the top four

global exporters - the US, New Zealand,

Austral ia and the EU - to accelerate

sl ight ly but remain relat ively modest at

around 1.3%. Global dairy demand

growth wi l l accelerate f rom 1.5% to 2.5%,

dr iven chief ly by accelerat ing growth in

India and other emerging markets.

In terms of dairy import demand from

China, the largest buyer of US dairy and

the second largest importer of dairy

worldwide, wi l l be subdued over 2021.

Rabobank

Fol lowing the disrupt ion due to the in i t ia l

spread of Covid-19, and the ensuing

lockdowns, the dairy-producing and

consuming regions of the wor ld have

been gradual ly rebalancing supply and

demand.Strong global t rade has helped to

support markets, combined with varying

degrees of government support and

purchases - ranging from f iscal st imulus

to consumers and direct payments to

producers to storage aid or government

purchases of dairy products. Despi te the

disrupt ions due to Covid-19, farmgate

mi lk pr ices in the major mi lk-producing

regions of the wor ld have been resi l ient ,

and product ion wi l l remain in growth

mode.

Government aid is l ikely to s low, but not

disappear in 2021, as the longer- term

impact of Covid-19 and economic

recession emerge. St i l l , wi th global mi lk

product ion increasing and demand st i l l in

recovery mode, we expect market

fundamentals to remain weak through at

least the second quarter of 2021.

USDA

Based on recent data, the forecast for the

2021 average size of the [US] mi lk ing

herd has been raised to 9.395m head.

With higher expected mi lk cow numbers,

the mi lk product ion forecast for 2021 is

226.3bn pounds.

Exports of whey products, especial ly to

China, are expected to cont inue growing.

With more compet i t ive US pr ices, h igher

exports of cheese are expected.

26

The forecast for 2021 imports on a mi lk- fat

basis has been lowered to 6.8bn pounds,

0.1bn lower than last month’s forecast,

due to lower expected imports of var ious

dairy products.

The forecast for 2021 domest ic use on a

mi lk- fat basis is 222.5bn pounds.

Pr ice forecasts for 2021 have been

lowered for cheddar cheese and butter to

$1.635 and $1.570 per pound,

respect ively, due to recent pr ice

movements and lowered expectat ions for

domest ic demand.

The NDM [non-fat dry mi lk] pr ice forecast

for 2021 has been raised to $1.065 per

pound. The dry whey pr ice has been raised

by 4.0 cents to $0.405 per pound, due to

recent pr ice movements and higher

expectat ions for exports of whey products.

With the lower cheese pr ice forecast for

2021 more than of fset t ing the higher dry

whey pr ice forecast, the Class I I I mi lk

pr ice forecast for 2021 is $15.60 per

hundredweight, $1.65 lower than last

month’s forecast.

With the lower butter pr ice forecast more

than of fset t ing the higher NDM pr ice

forecast, the Class IV mi lk pr ice forecast

has been lowered $0.40 to $13.60 per

hundredweight. The al l -mi lk pr ice forecast

for 2021 is $16.60 per hundredweight.

HOGS: WILL FUTURES FEELPRESSURE FROM EASINGCHINESE IMPORT NEEDS?

27

Lean hogs were one of the few major

agr icul tural commodit ies to post pr ice

losses in 2020.

But the eventual decl ine, at 1.6%, was far

less severe than i t looked l ike being in

Apr i l , when Chicago futures fe l l to the

lowest s ince 2002, undermined by the

threat f rom Covid to domest ic demand for

pork, and to US slaughter capaci ty, which

caused a back-up in suppl ies of f in ished

animals.

Strong US exports helped revive pr ices,

wi th shipments for 2020 (up to Chr istmas

Eve) up 32% year on year at 1.91m

tonnes, led by a 95% surge to 698,100

tonnes in shipments to China, where a

hog herd rebui ld f rom Afr ican swine fever

has yet to t ranslate fu l ly into enhanced

pork output.

Wi l l China’s herd rebui ld feed through

into US export weakness in 2021,

weighing on hog pr ices? Or wi l l the

passing of Covid br ing suf f ic ient extra

demand to help futures higher?

Leading commentators give their v iews

below.

Bank of America

Afr ican swine fever (ASF) is st i l l a r isk to

pork product ion, especial ly in Europe.

Germany is the wor ld’s th i rd largest pork

exporter, compris ing 15% of global

exports, and any case of ASF in a

domest ic swine herd could shut the ent i re

country ’s exports.

ASF has been spreading westwards f rom

Asia to eastern Europe and through

Europe via the wi ld boar populat ion. ASF

is gett ing dangerously c lose to the

German domest ic pig herds and i f or

when i t spreads to these, i t could shut

of f the country ’s exports, wi th a bul l ish

impact on global pork and other meat

pr ices.

We are bul l ish on both l ive cat t le and

lean hogs in 2021 on the sequent ia l

demand recovery combined with supply

side response lags.

For pork, the margins are already qui te

strong, and the supply s ide takes less

t ime to respond to pr ice s ignals than that

of cows as the l i fecycle for hogs is

shorter - only s ix months f rom bir th for

s laughter weight to be reached. Thus,

the pr ice ral ly in pork could be less

muted.

St i l l , we see upside to both lean hog and

l ive cat t le pr ices, and both also have

mater ia l upside r isk which we have not

factored into the base case. Hog pr ices

have probably the largest upside r isk

from ASF in Germany, a non-tai l r isk,

whi le both have tai l r isk upside from any

Covid-19 mutat ions jumping to any of the

meats we eat.

Goldman Sachs

Through 2021, we bel ieve the US hog

market wi l l l ikely cont inue on a s low path

of rebalancing, af ter the histor ic

disrupt ion Covid-19 brought th is year.

Whi le supply has returned to near

seasonal norms, f rozen storage stocks

have remained low as China increased

i ts imports of pork to help of fset a large

Hogs: Will futures feel pressure from easing Chineseimport needs?

28

domest ic def ic i t , point ing to volat i l i ty in

pr ices going into 2021.

We see the large supply rotat ion that

began in the second hal f of 2020

cont inuing in 2021, as China works to

rebui ld i ts hog herds, whi le the US works

to reduce them after shutdowns created a

backlog in the f i rst hal f of 2020. This

should lower US pork compet i t iveness

relat ive to domest ic Chinese supply,

at tenuat ing US exports,

However, we expect Chinese supply (and

hence export demand) to accelerate only

gradual ly into 2021.

Net, the cont inued rebalancing of the US

herd we forecast should support a

seasonal ly moderated upswing in pr ices

throughout 2021. Accordingly, we change

our forecasts to $65, $80, $70 per

hundredweight [on three-, s ix- and 12-

month hor izons respect ively] .

Rabobank

Hog suppl ies should be more than

adequate through 2021, wi th l imi ted herd

contract ion and cont inued product iv i ty

gains in 2020 ensur ing suff ic ient

s laughter-ready hog suppl ies.

The US wi l l begin the year wi th an

est imated 3.8% decl ine in s laughter,

fo l lowed by a more favourable second-

quarter comparison versus the Covid-19

disrupt ion in 2020, wi th product ion

expected to increase 7.1% year on year.

Lower US domest ic avai labi l i ty wi l l dr ive

a 20% stronger lean hog index through

the f i rst hal f of 2021, versus the pr ior

year. Stronger year-on-year f i rst quarter

exports and improved domest ic demand

through the f i rst hal f of 2021 are key

dr ivers of our out look.We are somewhat

less opt imist ic on lean hogs in the

second hal f of 2021, however, as

exporters are expected to s low (down 2%

year on year) on the recovery in Chinese

product ion.

Steiner Consult ing

In the near term, [US] hog suppl ies

remain plent i fu l but wi th good export

demand and low cold storage stocks the

market could manage to absorb the

relat ively large suppl ies.

The decl ine in the breeding herd could

provide support to the summer market

al though futures already have some lof ty

premiums bui l t versus winter and ear ly

spr ing levels.

Any project ions for the summer and fal l

of 2021 wi l l need to be anchored on

export expectat ions. With more than a

quarter of pork going to export , th is

clear ly remains a key wi ld card going

forward.

One of the key surpr ises f rom

December’s US Department of

Agr icul ture quarter ly Hogs and Pigs

report was the est imate of the breeding

herd, pegged at 6.276m head, 3% lower

than the previous year. This was the

smal lest US hog breeding herd s ince

March 2018.

The reduct ion in the breeding herd points

to the fact that producers may keep the

l id on product ion, be this due to ongoing

market uncertainty domest ical ly,

uncertain export demand and the ef fect

of h igher feed costs.

29

PALM OIL: WILL PRICESMAINTAIN BUOYANCYTHROUGH 2021?

30

Palm oi l futures in 2020 gained 18.0%,

enjoying their best performance in four

years. But the headway did not come

without a f ight .

With palm oi l used largely in making

biodiesel , the dent to fuel demand from

the pandemic saw pr ices in May post

losses for the year of 37%, before

recover ing as hopes for wor ld economic

revival improved demand prospects, and

disappointment set t led on product ion data

instead.

In Malaysia, where plantat ions rely

largely on foreign workers, border

restr ict ions prompted by Covid have

exacerbated a squeeze on labour, wi th

suppl ies also hampered, as in Indonesia,

by heavy rains at t r ibuted to the La Nina.

But these rains too are expected to help a

recovery in South East Asian palm oi l

output too.

Wi l l th is be suff ic ient to puncture the

palm oi l ra l ly and send futures lower

again? Leading commentators give their

v iews on pr ice and supply and demand

prospects.

Council of Palm Oil Producing

Countries

The Counci l of Palm Oi l Producing

Countr ies (CPOPC) is of the v iew that

palm oi l pr ices are l ikely to stay high in

the f i rst hal f of 2021, amid lower soybean

crushing in Argent ina and r is ing

sunf lower oi l pr ices.

The wider CPO pr ice discount to other

vegetable oi ls is also support ive of g lobal

palm oi l demand.

Droughts in the Black Sea region are

also l imi t ing sunf lower and rapeseed

product ion. This would resul t in elevated

vegetable oi l pr ices wel l into the f i rst

hal f of 2021.

At the same t ime, the current developing

La Nina may cause some disrupt ions to

soybean product ion in South America.

Current edible oi l stockpi les in China and

India are also t ight , keeping edible oi l

imports heal thy. The pr ice surge in the

last quarter of 2020 ref lects the rapidly

recover ing demand from India and

China… af ter they went throughnat ionwide lockdowns and temporary

hal ts on economic act iv i t ies due to the

pandemic.

Many analysts agree that the palm oi l

supply wi l l improve in the second hal f of

2021 due to the ef fect of h igher rainfal l ,

which should be benef ic ia l for f resh

[palm] f ru i t bunch yields.

On the whole, the palm oi l out look in

2021 looks favourable compared with the

average pr ices of 2019 and 2020. I t wi l l

depend on the development of La Nina

on the soybean complex in South

America and Indonesia’s B30 biodiesel

mandate.

The ful l implementat ion of the B30

mandate in Indonesia and the B20

mandate in Malaysia is crucial to sustain

domest ic consumption and absorb the

ant ic ipated palm oi l supply growth.

Palm oil: Will prices maintain buoyancy through 2021?

31

Fitch Ratings

Fitch Rat ings expects CPO (crude palm

oi l ) pr ices to decl ine in 2021 on higher

supply and assumes they wi l l average

$560 per tonne, despi te some upside r isk,

such as weather.

Palm oi l inventory in Malaysia shrank in

November to i ts lowest level s ince June

2017 due to weak CPO output, which is

down as estates in Malaysia, which

depend on foreign workers for around

80% of their manpower, are facing labour

shortages due to pandemic-related border

restr ict ions.

However, Indonesian output and

inventory has been steadi ly r is ing in the

last few months. Palm oi l output in

October jumped by 16% year on year to

reach i ts highest level s ince at least

2016. Inventory was also up by 14%

month-on-month, to be 35% higher than

at the start of the year. Output is up due

to better weather condi t ions and higher

fert i l izer input and should remain high in

2021.

Purchases by India, the wor ld’s largest

palm oi l importer, were down by 20%

mom and 7% yoy in November 2020. We

bel ieve this was due to the high pr ices

causing Indian buyers, who are highly

pr ice-sensi t ive, to defer purchases.

Indonesia’s biodiesel consumption,

another key dr iver of g lobal demand

growth, is also at r isk. The government is

consider ing cutt ing i ts 2021 target to

8.5m ki lo l i t res, f rom 9.2m ki lo l i t res,

according to a Bloomberg report . Thus,

Indonesia could see f lat b iodiesel

demand, as the market also est imates

2020 consumption at 8.5m ki lo l i t res.

32

Oil World

Oil palms [ in Indonesia] are recover ing

and are l ikely to y ie ld a considerably

higher number of f resh frui t bunches (FFB)

next year.

In January-to-November 2020, rainfal l was

about 121% of normal for the average of

al l report ing stat ions, wel l up f rom 87%

one year and 106% of normal two years

ear l ier . Heavy rainfal l reportedly delayed

FFB harvest ing and in- f ie ld col lect ion and

somewhat curbed product ion of crude palm

oi l recent weeks. But the rains wi l l have a

benef ic ia l ef fect on the performance of the

oi l palms next year. We est imate crude

palm oi l output in Indonesia to show a

pronounced recovery in calendar year

2021 and increase by 3.6m tonnes from

this year.

In Malaysia favourable rainfal l received in

Apr i l to December has strengthened the oi l

palms , which wi l l show up – though with a

t ime lag – in an increased number and a

higher weight of f resh frui t bunches.

Lagged ef fects of previous fert i l izer

reduct ions as wel l as the shortage of

foreign labour wi l l cont inue to be

constraints.

I t remains to be seen whether the

Malaysian government wi l l change

regulat ions on immigrat ion to ease the

acute labour shortage. Despi te r is ing

unemployment, p lantat ions reportedly

cont inue to face problems in recrui t ing

domest ic workers.

We expect Malaysian product ion to show a

year-on-year increase already in January-

to-March 2021, and forecast a recovery in

product ion by 0.5m tonnes from this year

to 19.8m tonnes in January-to-December

2021.

Rabobank

Global palm oi l product ion in 2020-21 is

forecast to increase by 3.1m tonnes, or

4% year on year, to 80.3m tonnes, on the

back of product ion recovery in Indonesia

and Malaysia.

The La Nina weather phenomenon in

2021 is expected to increase precipi tat ion

in South East Asia. On top of th is, due to

a high palm oi l pr ice environment,

planters in Indonesia and Malaysia have

increased their fer t i l izer appl icat ions in

2020, compared to 2018 and 2019.

Meanwhi le, g lobal palm oi l demand is

forecast to increase in 2020-21 by 2m

tonnes, or 3% year on year, to 77.5m

tonnes.

Indonesian biodiesel consumption is only

expected to reach 80-85% of the B30

[30% blend of b iodiesel in diesel ]

33

mandate target of 9.6m ki lo l i t res in 2020,

dur ing to an unfavourable palm oi l /gasoi l

spread and reduced domest ic biodiesel

demand as a resul t of the Covid-19

pandemic.

We forecast Indian palm oi l consumption

to increase to 8.9m tonnes in 2020-21,

an increase of 0.4m tonnes, or 5.2%,

year on year. The increased avai labi l i ty

of soyoi l in China in 2021 wi l l l imi t palm

oi l consumption in the country.

Hence, we forecast China’s palm oi l

consumption to increase by 0.13m

tonnes, or 2% year on year, to 6.5m

tonnes in 2020-21.

Based on the supply and demand factors

of palm oi l , and global vegetable oi ls as

a whole, we forecast 2021 palm oi l pr ices

to increase by 5.7% from 2020, to an

average of 2,750 r inggi t per tonne.

SOYBEANS: CAN FUTURESEXTEND THEIR RALLY TOSIX-YEAR HIGHS?

34

Soybean futures were outstanding

performers in 2020, appreciat ing by

near ly 40%, to record their best year

since 2007. From the low of $8.08 ¼ a

bushel on a spot contract basis reached

in Apr i l , amid the peak of Covid-19

concerns, they have soared by

approaching 60% as strong Chinese

import needs, to feed a recover ing hog

herd, have met wi th a disappoint ing US

harvest, and dryness worr ies over South

American output.

Whi le such a pr ice shi f t over the course

of 12 months is not unprecedented, what

is more unusual is for pr ices to hi t their

peak as the year c losed. Does this mean

that investors should expect fur ther gains

in 2021? Or wi l l pr ices at s ix-year highs

br ing the extra product ion needed to

boost output and ease the supply

squeeze? Leading commentators give

their thoughts.

Bank of America

US export sales to China for the 2020

harvest rose strongly dur ing the year,

despi te these imports being

uneconomical compared to Brazi l , and

despi te China l ikely fa l l ing far short of

the promised $50bn target in any case.

With [US President Donald] Trump soon

leaving the White House, China might

stop even pretending to t ry to meet their

promises to Trump, causing soybean

sales to s low.

I f Biden manages to deescalate the t rade

tensions and manages to get China to

remove some of the tar i f fs on US

soybeans, i t would cause a big upl i f t in

US soybean pr ices in 2021.

We expect the global soybean balance to

cont inue to t ighten through 2021 and

pr ices can l ikely go higher. Stock to use

rat ios, which wi l l l ikely f in ish 2020-21 at

2.8 years of demand in inventory, could

l ikely fa l l below 2.5 at the end of 2021-

22, the lowest level in over a decade.

Commerzbank

The next US sowing season is st i l l a long

way of f , but according to in i t ia l

est imates, US soybean acreage is l ikely

to be expanded signi f icant ly next spr ing.

The US Department of Agr icul ture’s

in i t ia l est imate of [2021 US] product ion

is 4.465bn bushels (121.5m tonnes), up

7% from the previous est imate and a new

record. However, demand at home and

abroad is expected to remain high, so

that despi te higher product ion, the

stocks-to-use rat io in the US, which has

fal len sharply to 4% over 2019-20 and

2020-21, is unl ikely to r ise.

The mixture of dwindl ing US inventor ies

and cont inued high demand in 2021

suggests that pr ices wi l l remain high,

especial ly i f the c l imate in South

America remains too dry. Only i f the

Brazi l ian harvest reaches the forecast

record level should the s i tuat ion ease in

the spr ing of 2021, especial ly s ince

Argent ina’s produce wi l l then also be

coming to the markets.

For the fourth quarter 2021 we expect a

soybean pr ice of $11.00 per bushel .

Soybeans: Can futures extend their rally to six-year highs?

35

FocusEconomics

Soybean pr ices wi l l l ikely taper s l ight ly

from recent highs next year due to easing

demand from China. Panel l is ts see the

pr ice of soybeans averaging $10.30 per

bushel in the fourth quarter of 2021 and

$9.89 per bushel in the fourth quarter of

2022.

Global Commodity Analytics

Last year provided several keys to the

2021 pr ice out look in my view, the most

important among them being how global

soybean product ion is l ikely to be a more

prominent key to the 2021 US average

pr ice received by producers. Between the

pandemic hoarding and China’s

rebui ld ing of i ts domest ic hog herd, these

major demand dr ivers cont inue into 2021,

and wi l l l ikely be guided by the out look

for global suppl ies.

Current ly in South America and then in

the US, we’ve seen a posi t ive feedback

loop develop in the demand for soybeans

based upon ant ic ipated supply - i f supply

is expected to be lower, end ‐users arel ikely to cont inue to buy extra and ear l ier

than normal.

Depending upon the f inal outcome of

South American product ion, as wel l as

the US spr ing plant ings, th is pattern

could cont inue into March ‐Apri l - s imi larto 2007 ‐08. I ’m ant ic ipat ing weathercont inuing to force the market higher

af ter a correct ion in pr ices in January

(or maybe February).

Goldman Sachs

The t ightening of the US soybean

balance has been even more dramat ic

than for corn af ter a year of surging

Chinese demand and a disappoint ing US

harvest. Together, they point to

uncomfortably low inventor ies heading

into the 2021-22 crop year, leaving

soybean pr ices needing to outperform

corn and cotton to secure addi t ional

acreage in the US next spr ing.

Any further t ightening of the 2020-21 US

balance wi l l require pr ices to r ise enough

to ei ther lower US crush demand and

Chinese imports, or incent iv ise increases

in Argent inean soy to the US to make up

the short fa l l . This leaves pr ice r isk in the

f i rst hal f of 2021 not only weather-

dependent but also skewed to the upside

in our v iew, wi th pr ices potent ia l ly

returning to the $12-14 per bushel

t rading range of 2011-14 i f the Lat in

American harvest is poor.

We see 2021 as the start of a structural

r ise in domest ic crush demand, as

renewable diesel ( largely based on

soyoi l ) gains an increasing share of the

diesel market. At current inventory

levels, deferred pr ices therefore need to

remain elevated to incent iv ise increased

acreage, of fset t ing th is year ’s def ic i t

wi th next year ’s surplus.

Rabobank

The magic soybean stalk shows no signs

of wi l t ing. Bare US bins, nervous

consumers, long funds, and prominent

36

weather r isks in 2021 are l ikely to keep

the pr ice f loor for Chicago soybeans

elevated through 2022.

With 2020-21 US stocks f ront- loaded to

sat isfy inf lat ionary wor ld demand, there is

remarkably l i t t le margin for supply issues

in 2021. Yet in Brazi l… La Nina’spresence is rais ing fears of soybean

maturat ion issues and spurr ing extended

US coverage among consumers.

In our base case, soy demand growth in

China of 8.2m tonnes year on year – to

feed i ts hog repopulat ion in the wake of

Afr ican swine fever – leads a recovery in

global soy imports, to a record 165.5m

tonnes in 2020-21. In response to low

avai labi l i ty , US 2021-22 soy plant ings

increase to 89.5m acres (up 6m acres

year on year) .

For farmers to just i fy those addi t ional

acres amid an increasingly compet i t ive

summer crop landscape – China is also

buying record amounts of US corn –

Chicago soybeans’ r isk premium wi l l

l ikely keep pr ices near $12.20 a bushel

through the f i rst hal f of 2021. Chicago is

unl ikely to see much easing unt i l the f i rst

quarter of 2022, when South America’s

[2021-22] crop is conf i rmed and as US

farmers prepare to plant a large acreage

again.

University of I l l inois

There are several factors dr iv ing the ral ly

in corn and soybeans, but the number one

reason is c lear ly export sales. Soybean

export commitments are up almost 1bn

bushels versus a year ago. The wind

behind these export sales was China.

Another contr ibut ing factor to the pr ice

ral ly was a poor ending to the 2020 US

growing season.

The USDA soybean crop est imate

decl ined by over 250m bushels [between

August and November] . Market

incent ives as of ear ly November c lear ly

favour plant ing soybeans over corn. For

example, the soybean-corn pr ice rat io for

new crop 2021 futures has been above

2.5 for some t ime, compared to a

breakeven rat io around 2.3. With th is

incent ive in place we expect planted

soybean acreage to increase 7.7m acres

to 90.8m acres. At t rendl ine y ields, th is

wi l l resul t in a soybean crop of about

4.5bn bushels.

This sets up a very volat i le scenar io for

2020-21. Even with product ion at the

projected levels, the current s ize of the

demand base for corn and soybeans

impl ies that i t wi l l be di f f icul t for ending

stocks to increase substant ia l ly in 2020-

21.

For stocks to be replenished to more

normal levels, e i ther pr ices wi l l have to

r ise fur ther to reduce the size of the

demand base, or good weather wi l l be

needed f i rst in South America th is winter

and then the US in the summer of 2021.

On top of a l l th is, there is the t iming of

the expected economic recovery as

Covid-19 vaccinat ion proceeds. The

rol ler-coaster r ide in the grain markets is

unl ikely to end anyt ime soon.

37

SUGAR: DOES THESWEETENER’S SURPRISEPRICE REBOUND HAVE LEGS?

38

Sugar has been one of the ag markets

most af fected by the pandemic.

Demand took a hi t as Covid restr ict ions

stemmed consumption of many sweetened

products, a t rend seen more signi f icant ly

in cocoa. However, wor ld demand for fuel

suf fered an even bigger setback -

meaning that sugar st i l l represented a

better bet for mi l ls in the l ikes of Brazi l ,

which can turn crop into ei ther the

sweetener or ethanol .

The fal l in New York futures in Apr i l to

their lowest s ince 2007 was, then, not

such a surpr ise. What was less

predictable was the recovery s ince, as

Brazi l ’s burgeoning output met wi th

unexpectedly strong demand from

importers.

Raw sugar futures c losed the year up

15.4%, wi th London white sugar gaining

17.2%. Wi l l the demand improvement

cont inue, and give extra support for

pr ices, enjoying the benef i t too of

reviv ing fuel values? Or wi l l s tockbui ld ing

cease, and expose the market to pressure

from revived Indian output? Leading

forecasters give their v iews.

Bank of America

The sugar balance is loosening and

pr ices may have rebounded too strongly.

Even with a strong demand rebound in

2020-21, the global sugar balance is st i l l

running at product ion about 10m tonnes

higher than consumption. Albei t th is is

with a very strong assumed rebound in

the demand, which may not come through

i f the wor ld economy does not rebound

strongly in 2021.Sugar pr ices have

already recovered to near pre-Covid

highs, but wi th a loosening balance we

think pr ices have rebounded too

strongly.

We may see pr ices come off over the

winter and only rebound in the spr ing

when oi l (and thus ethanol) demand gets

a boost f rom the vaccine ef fect on

increased dr iv ing.

Commerzbank

Due to the increase in product ion in the

largest sugar countr ies Brazi l and India,

global sugar volumes in 2020-21 are

l ikely to be higher than in the previous

year. Some observers, who are not so

opt imist ic about demand, therefore

expect a surplus on the sugar market in

the current season.

We also see the r isks for pr ice t rends in

coming months as being rather to the

downside.

On the demand side, subdued sugar

consumption due to reduced out-of-home

consumption, on the supply s ide the st i l l

exist ing possibi l i ty of larger del iver ies

from India to the wor ld market and an

unwinding of posi t ions by short- term

oriented market part ic ipants, who

cont inue to hold a very strong net- long

posi t ion.

For the fourth quarter of 2021 we expect

a raw sugar pr ice of 13.5 cents per

pound.

Sugar: Does the sweetener’s surprise price reboundhave legs?

39

FocusEconomics

Sugar pr ices are seen remaining broadly

stable in 2021 and 2022. Upside r isks

stem from a prolonged heal th cr is is and a

subsequent extension of restr ict ions,

despi te recent opt imism over a vaccine.

Meanwhi le, producers tempted by the

current high pr ices could ramp up

product ion, boost ing supply in turn and

posing a downside r isk to pr ices.

Our panel l is ts see pr ices averaging 13.8

cents per pound in the fourth quarter of

2021 and 13.8 cents per pound in the

fourth quarter of 2022.

Forecast Commodity Services

India’s decis ion to subsidise 6m tonnes of

sugar for export wi l l boost global export

avai labi l i t ies. The subsidised exports wi l l

weigh on sugar futures pr ices in

upcoming months.

The 2020-21 global sugar market wi l l

l ikely have a 1m-4m tonne def ic i t due to

lower-than expected world product ion and

higher wor ld consumption. The expected

global def ic i t wi l l support sugar futures

pr ices in the months ahead.

In eight of the past 10 years, No. 11

futures pr ices have decreased from

January through May.

Nearby New York number 11 futures

pr ices are forecast to average 13.75-

14.25 a pound in January-March

compared with 13.68 cents a year ear l ier .

For Apr i l -June, nearby number 11 futures

pr ices are projected to average 13.25-

13.75 cents a pound, compared with

10.84 cents a year ago.

40

Goldman Sachs

Moving into 2021, sugar pr ices wi l l

decl ine moderately as supply gains of fset

a moderate demand recovery. We see

global product ion up 9% to 180m tonnes

despi te fa l l ing Thai y ie lds, wi th the

market under-pr ic ing India’s large crop

and r is ing stockpi les.

We bel ieve a large Indian sugar export

subsidy and low domest ic pr ices wi l l

dr ive exports to 6m tonnes. With a

second wave bui ld ing across Europe and

the ear ly s igns of a th i rd appear ing in the

US, we see near- term r isks to sugar

demand exact ly when excess Indian

supply wi l l be hi t t ing the world export

market.

Af ter fa l l ing for the f i rst t ime in 40 years,

we expect global demand to r ise c i rca

1.5m tonnes as lockdowns are l i f ted.

Ris ing ethanol pr ices dur ing Brazi l ’s

crushing season should moderate India’s

supply glut but only in 2021.

As a resul t , we see global sugar pr ices

moderat ing downward in the second hal f

of 2021, stabi l is ing at a new equi l ibr ium

of 13.5-14 cents a pound.

Marex Spectron

Wil l [wor ld sugar] product ion bounce

back in 2021-22? In beet producing

countr ies, we see no change in EU beet

area, but probably a recovery of up to 1m

tonnes [ in product ion] i f weather returns

to normal af ter three successive years of

drought.

In Russia/ former Soviet Union, we think

that producers have learned in 2020 the

benef i t of reducing product ion to be more

or less in l ine wi th consumption – and

that benef i t was a r ise in the domest ic

pr ice f rom $300 to $600 per tonne, so we

doubt i f they wi l l increase product ion

substant ia l ly .

Among cane producers, in Centre South

Brazi l h igh pr ices in local currency terms

for the past two years wi l l s t imulate

product iv i ty, but cane product ion seems

to be plateauing at around 600m tonnes.

Only Thai land look as i f they wi l l certainly

begin to return to higher product ion in

2021-22.

In summary there wi l l a lmost certainly be

an improvement, but not massive, and

this increase in supply wi l l not make i tsel f

fe l t unt i l ear ly 2022.

Has the market already done enough? I t

has r isen from a low of 14.09 cents a

pound in mid-December so i t has already

done a lot of the work. The real quest ion

now is - what pr ice do we have to go to in

order to f ind that extra supply which we

probably need af ter March 2021?

In the meant ime, there are a lot of

subsidiary quest ions which we wi l l get the

answers to progressively as the weeks go

by. What wi l l the Thai crop be?

What wi l l ra ins in Centre South Brazi l be?

How quickly wi l l Indian exports get

shipped? The market may need to get a

few answers before i t chooses i ts next

move.

41

Rabobank

We expect the extra demand from tol l -

ref in ing, stockbui ld ing and Chinese

import demand to be only short- term

factors, and this underpins our rather

bear ish forecast in the short term.

A key quest ion is the sugar mix in Brazi l

in 2021-22. Rabobank maintains a fa i r ly

neutral v iew on energy pr ices. With th is

in k ind, i t is l ikely Brazi l wi l l cont inue to

favour sugar through 2021, but a

complete maximisat ion is by no means

guaranteed.

We expect a balanced global supply and

demand in 2020-21, wi th the increase in

supply out of Brazi l compensated by

drops in Thai land and the European

Union.

Looking to 2021-22, the dry weather in

Brazi l so far in 2020 is prevent ing a

normal [cane] crop and more rain wi l l be

needed. I f the dr ier- than-normal weather

cont inues, i t is unl ikely Brazi l Centre

South wi l l achieve 600m tonnes.

As the EU and Thai land are whi te [sugar]

exporters, their drop wi l l necessar i ly

resul t in a whi te premium strong enough

to incent iv ise to l l ref in ing – something

north of $70 a tonne – unt i l the next

crops arr ive in October 2021.

WHEAT: CAN FUTURESNOTCH UP A, RARE, FIFTHSUCCESSIVE YEAR OFGAINS?

42

Wheat futures rose in Chicago for a

fourth successive year in 2020.

Support f rom r ival crops, notably corn,

helped, as did wheat ’s status as a food

staple – a big demand asset in a year

dominated by Covid 19 concerns.

And al though many forecasters est imate

world wheat inventor ies at a record high,

this gives a somewhat misleading picture

of the avai labi l i ty of suppl ies, wi th much

stockpi led in the l ikes of China and India,

unavai lable to the wor ld market, and

relat ively l i t t le in key export ing countr ies.

St i l l , wi th the European Union expected

to see a sharp recovery in i ts wheat

harvest th is year, af ter a far better

autumn sowings per iod, and Austral ia

back on song, have pr ices passed their

best? Or might the ear ly dryness tests to

Russian and US crops for the 2021

harvest keep pr ices supported? Key

commentators give their v iews below.

ABN Amro

Upside pr ice r isks for wheat come from

worr ies over dry weather in US and

Russia. Also, stronger Chinese demand

and record low inventor ies inf late pr ices.

We think pr ices wi l l be supported as long

as demand from China remains elevated.

Bank of America

A widening surplus and new record high

inventor ies is bear ish wheat in 2021. With

product ion growing by 20m tonnes and

demand growing by a normal pace of

just 10m tonnes in 2021-22, we expect

the global surplus of 29m tonnes in the

wheat balance this year to widen in

2021-22.

We project a record surplus of 40m-45m

tonnes, the highest s ince 2008-09, and

that means global wheat stock-to-use

rat ios wi l l r ise to yet another record high

from the previous record set in 2020-21.

We think the ral ly in wheat pr ices in the

second hal f of 2020 is overdone, and

pr ices should t rade lower through 2021.

The surge in wheat product ion outside

the US is also ref lected in regional

spreads, wi th US wheat t rading at the

highest premium to European wheat in

years. As US producers plant more corn,

th is spread should narrow in 2021.

Commerzbank

With the market outside China and India

just about balanced in 2020-21 and

support f rom the corn market, wheat

pr ices are l ikely to remain high in the

coming months.

Even an increase in product ion in 2021-

22 does not yet mean that there wi l l be a

major bui ld-up of stocks in the export ing

countr ies, as demand is l ikely to

cont inue to r ise.

Only later and only in the event that the

harvests in the northern hemisphere

prove to be very good and the next US

harvest also br ings an easing of the

si tuat ion on the corn market, could th is

lead to pressure on pr ices.

Wheat: Can futures notch up a, rare, fifth successive yearof gains?

43

I