Though 2012 will go down in the history books as a particularly trying year for U.S. farmers, Rabobank reports that global agricultural commodity markets are expected to shift from a squeeze to a surplus in 2013, but prices will remain volatile.
Rabobank's annual commodities outlook, titled "Outlook 2013 – Rebalancing on a Tightrope," analyzes how global macro uncertainty is shaping the markets, specifically the impact of a weak dollar on prices, as well as how speculative money flows will continue to drive trading patterns.
For grains and oilseeds, Rabobank says prices will start to ease in the second half of 2013 as a global surplus begins to emerge. Global stocks-to-use of corn, wheat and soybeans will rise about 1.9 points to 19.9% and remain below 2011-2012 levels, sustaining prices in the second half of the year. Multi-season surpluses will be required to rebuild inventories and rebalance fundamentals, Rabobank says.
Soft commodity markets have fallen to levels Rabobank deems as fair value, as those markets have already moved through the high-price, increased supply, low demand cycle that is predicted for hard commodities in 2013. Rabobank says unwinding of investor short positions and commercial buying will keep markets and prices flat in 2013.
Rabobank forecasts world GDP to increase 3.75% in 2013, sustaining demand even as ag markets are challenged to rebuild global stocks.
"Weak global economic growth and continued macro uncertainty may cause a slight drag on demand for agricultural commodities in 2013," said Luke Chandler, global head of Rabobank's Agri Commodity Markets Research department. "However, a low U.S. dollar will provide support for prices. Speculative money flows will also remain very sensitive to macro uncertainties, with the risk-on/risk-off trading pattern of 2012 likely to continue. Using the S&P Agri Index as a proxy for our commodity forecasts, we expect a decline in agricultural prices of around 10% in 2013."
For specific commodities, Rabobank expects CBOT corn prices to fall 24% from Q1 2013 to average $6 a bushel in Q4 2013 during the U.S. 2013-14 harvest. Despite the bearish outlook, the beginning of 2013 is expected to see prices rise from current levels to encourage further demand rationing in the U.S.
Soybeans are expected to be supported by tight export supplies before declining as production rebounds in 2013, with prices averaging below 2012 levels.
Wheat prices are projected to rise in Q1 2013, then fall 23% to $7 a bushel by the end of the year.
Cotton faces oversupply in 2013, leading to a plateau in prices, however the curve will lift by year's end.