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Nigeria Strategy Report H1 2018 Excerpts - Commodity prices crater from supply glut

• The weakness in commodity prices, that began earlier in the year, continued for the rest of the year as major commodities faced supply glut.  Consequently, the S&P GSCI Agricultural Index posted a decline of 9%, largely driven by surplus positions in Wheat, Rubber, Crude, Palm Oil (CPO), Raw Sugar and Cocoa, excluding barley where a deficit picture stimulated the rally in prices.
• Barley prices bucked the bearish trend across the soft commodity market over 2017 as the market switched to a deficit position of 2.1MT in the period. The deficit picture, which reflected the combination of lower production and higher consumption, sent barley prices higher by 2.1% over 2017. Following the El-Nino, which hit palm’s fresh fruit yields and lowered output, major crude palm oil (CPO) producers have shrugged the El-Nino effect with production hitting elevated levels. Consequently, the CPO market switched from a deficit of 0.4MT in the past crop cycle to a surplus of 2.3MT in the 2016/2017 cycle. Raw sugar prices stayed depressed in 2017 reflecting higher production which significantly narrowed the deficit to 0.2MT (deficit of 4.5MT in prior season). Wheat prices extended the deceleration seen in 2016, declining 9.2% over 2017 as the market remained in a surplus position. Following the bearish trend over H1 17, cocoa prices rebounded to a modest growth of 0.7% over H2 17, reflecting the spread of black pod disease which is expected to restrain production. In contrast to the bullish trend over H1 17 where rubber prices rose 37%, prices maintained a descent over the second half of the year (-27% YTD) amid oversupply in the global markets.
• Our expectation for barley and cocoa prices remain bullish buoyed by wider deficit in the market as unfavourable weather implies constrained production and lower inventory levels. Similarly, we are cautiously optimistic on our outlook for rubber prices premised on ITRC’s decision to support prices by imposing a quota on production.  Elsewhere, our outlook for CPO, sugar, and wheat are bearish underpinned by favorable weather conditions which guides to higher production, elevated inventory levels as well as persisting market surplus. Overall, we maintain a mixed outlook for commodity prices over 2018.