Nigeria Strategy Report H1 2019 Excerpts- Commodity prices: Mixed fortunes trail global commodity market
- In this session, we continue discussion with the commodity section of our core strategy document – the Nigeria Strategy Report. In this piece, we review developments in the global soft commodities market over 2018 and delineate our outlook for the commodity market over 2019.
- Over the second half of 2018, following declines in prices of major soft commodities the S&P GSCI Agricultural index declined by 2.4%, extending the bearish trend observed in H1 18 (-49bps). Specifically, Cocoa, Crude palm oil (CPO) and Sugar led the declines, overshadowing uptick in Barley and Wheat prices. As expected, CPO and Sugar prices remained in the bearish terrain on the back of widening market surplus. However, the movement in cocoa prices came as a surprise as we expected a weather induced decline in market supplies to drive prices higher over the second half of the year. Nevertheless, optimism on increased market supply in the 2018/ 2019 crop season, hinged on improved weather in the world’s top cocoa producer— Ivory coast, drove the decline in prices. On the flipside, the support for barley and wheat prices stemmed from weather induced decline in crop yields as major producers experienced weather extremities in the review period.
- Going into 2019, the latest update from the World Meteorological Organization (WMO) which reveals that the occurrence of an El Niño is imminent provides some respite for global CPO prices. Hence, we remain somewhat optimistic on local CPO prices albeit, moderated due to subsisting market surplus and India’s decision to hike tariff charges on imported CPO. Similarly, our expectation for subsisting deficit in the global wheat market owing to tamer plunge in global consumption and faster plunge in global production (-5% YoY to 679.6 million tonnes) is positive for global wheat prices. For barley, the faster decline in consumption relative to supply translates to a lower deficit and invariably lower prices over the 2018/2019 season. Lastly, Cocoa prices are expected to rise over 2019 as consumption is expected to outpace production.
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