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NSR H1 2020 Excerpts - Commodity Prices - Contrasting fortunes for global soft commodity market

• In this afternoon’s cut-out of our core strategy document – The Nigeria Strategy Report, we look at the major themes that dominated the soft Commodities market in H2 2019 as well as our outlook for the market and commodities prices for 2020.
• Over the 2018/19 market year, the S&P GSCI Agricultural index declined 3.31%. In line with our expectations, wheat which makes up 21.14% of the index, was down over its market year (MY). Moderation in wheat prices (-2.94%) outweighed the uptick in sugar prices (+2.89%) as sugar accounts for 19.45% of the S&P GSCI index. This was largely driven by improved weather conditions which boosted the harvest in top producing countries. Elsewhere, while cocoa production jumped, consumption rose faster translating to higher prices over its marketing year. Barley and Crude Palm Oil (CPO), both of which are not included in the GSCI Agricultural index, saw their prices rise over the period on the back of lower production in the former and higher consumption in the latter.
•  Going into the 2019/20 season, more favourable weather conditions in key producing countries such as EU, Argentina, Ukraine and China should lead overall wheat production higher by 4.69%. This alongside expectation of tamer wheat consumption (+2.59% YoY) should sustain the bearish run in prices. Sugar prices, meanwhile, are expected to rise as a result of a possible switch in global sugar market to a deficit due to a faster decline in production levels (-6.6%). Unfavourable weather in India; lower yields and extraction rates in EU and Thailand; and a diversion of sugarcane towards ethanol production in Brazil are the reasons for the fall in sugar production. Similarly, CPO prices are predicted to rise on the back of faster growth in consumption (+3% YoY) than production (+2% YoY). As barley production rises faster than consumption, the market is expected to move into its first surplus since the 2015/16 season which should lead to a moderation in prices. Finally, a decline in production for the largest producer—Ivory Coast, and sustained rise in demand in Asia should see cocoa prices rise.