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Agricultural Commodity Trends

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Interest Rate Hikes Later in 2015 Less Than Expected!

Significant Flooding and Interest Rate Hikes Expected to Impact on Trade in 2015

Heavy rains across the United States impacted on the agricultural sector in late June as grain futures moved marginally off low levels. Traders have been largely bearish on grain deliveries for July owing to the extensive flooding on the Illinois River.

This has been exacerbated by declines in the USD owing to the FOMC meeting at the Federal Reserve. Analysts are expecting interest rates to rise during the course of the year, but the overall rate hike is likely to be less than originally thought.

In terms of corn crop production, early crop conditions are showing good signs. Presently there are no significant reductions in acreage to reduce production below demand levels. It is estimated that as much as 750,000 acres could be lost but this will not cause an effect on the price of corn.

Meanwhile the severe drought in California is causing concern among residents. It was reported that 15 gallons are required for the growth of a couple of almonds, and 12 gallons of water per lettuce. The fact of the matter is that while these numbers are correct, the water is being used to feed entire orchards, vineyards, trees and the like. The figures are not merely for the fruits and vegetables alone; they are intended over the course of the crop’s lifetime. To counter the drought, California is considering drip irrigation, less watering of lawns, and trapping more precipitation to increase the Golden State’s supply.

Buy Into Cocoa during Price Pullback

In terms of cocoa production, the U.K. and U.S. data looks particularly strong at this time. In terms of cross-currency exchange rates, the GBP is at a distinct advantage against the USD. As a result, London cocoa is doing well. Banc De Binary analysts have advised traders to use this small window of opportunity to buy into cocoa as there has been a slight pullback in the price.

On the agricultural commodities front (June 19 2015) ICE cocoa contracts were trading up 0.15% at $3,295/tonne, corn is down (0.83%), CME live cattle is down 0.86%, and wheat is down 0.35%. A big part of the reason why the price of cocoa is rising is a fungus destroying cocoa-pods which are leading to supply-side shortages from Ghana.

In terms of actual trading trends for various agricultural commodities, the following has been reported:

  • Cocoa is bullish for the Long Term and Medium Term, but bearish for the Short Term
  • Coffee Arabica is bearish for the Long Term and Medium Term, but neutral over the Short Term
  • Cotton #2 is neutral over the Long Term and Short Term, but bearish over the Medium Term
  • Orange Juice is Bearish over the Long Term, but Bullish over the Medium Term and Short Term
  • Coffee Robusta is Bearish over the Long Term and Medium Term and Neutral over the Short Term
  • Rubber-Tokyo is Bullish over the Long Term, Medium Term and Short Term
  • Sugar #5 White is bearish over the Long Term, Medium Term and Short Term
  • Soybean is Bearish over the Long Term and Medium Term but Neutral over the Short Term
  • Wheat is Bearish over the Long Term but Neutral over the Medium Term and Short Term
  • Lean Hogs are Bearish over the Long Term, Medium Term and Short Term
  • Live Cattle are Bullish over the Long Term, Medium Term and Short Term

The sugar market has been bearish for quite some time. The trend has been strongly negative and there appears to be no bottom in sight for this. The price of sugar has dropped precipitously from around $20 a year ago to $11.12 in the present day. The trend in sugar prices has been punctuated by spells of bullishness (January and February 2015) but overall the trend has followed a definite downward pattern.

Imported Sugar Reduces Prices

Throughout the world, sugar mills are calling on governments to reduce their imports of raw sugar in an effort to keep prices steady. Farmers are able to enjoy slightly higher yields by supplying to the mills at a relatively higher price. In Jakarta, Indonesia for example the price of sugar was supposed to around Rp 9,000/kg but owing to imported sugar, the price actually declined to Rp 7,900 /kg. What happens in this instance is that the price of sugarcane gets set low by the mills and farmers suffer as a result. Slack demand and an oversupply of sugar on the market has led to the sharp declines in the price of sugar.

Trends with U.S. Monthly Agricultural Trade

Since the year 2000, U.S. agricultural trade growth has increased dramatically. This is true of imports and exports. The strong growth has been fuelled by the rise in commodity prices, in addition to increasing demand from abroad and domestically. Trade growth has been accelerated by the North American Free Trade Agreement (NAFTA) and other international trade treaties. The U.S. monthly agricultural trade balance has resulted in a surplus being generated every year from September 2006.

According to the latest fiscal year figures released by the U.S. Department of Commerce, agricultural exports increased from 2012 through 2014. In 2012 the figure for exports was $135,906 billion, in 2013 the figure was $140,999 billion and in 2014 the figure increased to $152,513 billion. For 2015, the fiscal year to date figure is $90,340 billion, slightly off from the 2014 period for the same time.

Agricultural imports have also increased every fiscal year from 2011. In 2011 imports amounted to $94,511 billion, in 2012 they were $103,370 billion, in 2013 they were $103,879 billion and in 2014 they were $109,184 billion. For the year to date imports are presently at $67.172 billion which is higher than the 2014 figure for the same period.

According to the USDA, agriculture includes a host of products from live animals to vegetables, cotton, rubber, spices, cocoa and the like. Products not included in the list of agricultural produce are forestry products, shellfish and fish.  

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