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Nigeria Strategy Report H2 2018 Excerpts- Commodity prices: Peaks and Troughs across soft commodities

• After a decline of 1.6% in 2017, the S&P GSCI Agricultural Index shed more weight in the first half of 2018 (-49bps) against the backdrop of subsisting declines in the price of key soft commodities. Major commodities that drove the decline include barley, rubber, crude palm oil (CPO) & raw sugar, while wheat and cocoa prices tracked higher, limiting the drop in the index. To buttress, the price of raw sugar and CPO plunged to its lowest in three years while rubber declined to a 2-year low, reflecting excess supply in the respective commodity markets. On Barley, it was a case of moderating deficit, and a heightened possibility of a switch to surplus balance, from sustained rebound in production that led to a relapse in prices. In terms of gainers, wheat prices hit a two-year high in the review period, reflective of high demand for the commodity and muted rise in supply. Lastly, cocoa prices sustained its rally over the first half of 2018, owing to unfavorable weather in West Africa which induced tighter cocoa supplies.
• On balance, against the backdrop of high yields, expanded acreage area, and favourable weather conditions, which suggests higher supplies, we retain our lower price outlook for raw sugar and crude palm oil over the rest of 2018. Against our previous prognosis, we now expect barley and rubber prices to moderate over 2018, as we expect sufficient market supplies to depress prices. While, we retain our positive view for cocoa, we now predict an uptrend in wheat prices, as we expect the combination of high consumption and muted production to create tighter supplies.