| Coffee
Expanded production capacity in Brazil and Vietnam (both
low-cost producers) over the last decade, combined with continued
sluggish demand, means that over-supply has become the rule
in the coffee market.
What’s more, coffee producing countries (particularly
Brazil) have been reluctant to co-operate to improve their
collective position. Competition for market share is fierce,
so the International Coffee Organisation’s voluntary
programme – designed to reduce supplies by outlawing
the exports of sub-standard beans – had little effect.
Oil seeds
Overall, vegetable oil prices (except sunflower seed oil)
will continue to rise in 2003/04. The recovery in sunflower
seed oil output will cause reductions in absolute prices,
and relative to other oils.
Tropical oils are set for greater increases than seed oils,
albeit from a lower base level. Palm oil prices are likely
to rise relative to soybean oil prices.
Coconut and palm kernel oils prices will also rise substantially,
though they will remain competitive.
Soybean meal prices have changed little over the last three
seasons. For the foreseeable future, supplies appear to be
inadequate to meet future soybean meal demand, unless crushing
activity increases significantly.
| Sugar
World sugar stocks will slowly continue to rise
to 2005. Most of the increases are expected in
the EU, Brazil and China, though Indian and Russian
stocks may decline further.
Meanwhile, world raw sugar prices improved beyond
market expectations at the end of 2003, in spite
of disappointing levels of Russian and Middle
Eastern demand.
This partly reflected external issues such as
the heavier investments made by managed funds
and other large speculators in commodity markets.
Earlier fears that Brazilian exports might fall
sharply with increased competition from ethanol
helped keep prices high. So did concerns that
EU output would be more badly hit by droughts
and heat waves than it actually was. Most of these
fears proved over-stated, and the prospect of
over-supply has caused an exodus of speculative
money and a crash in prices to the lowest levels
for years.
Expect some price recovery over the next year
or two based on a slower rise in the world production
and stocks, and some improvement in demand.
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| Grains
Global barley stocks will fall to 20m tonnes at
the end of 2003/04. The small EU barley crop means
that stocks are not expected to rise in the next
two years.
So barley export prices will remain steady unless
there is a severe drought in the Middle East or
North Africa. EU feed barley is forecast to rise
by just over 8% in 2004, and by nearly 13% in
2005.
World maize carry-overs in 2003 were estimated
at 93m tonnes, including 26m in the US. This is
projected to fall, though the bumper big US crop
and China’s large exports kept export prices
down.
Prices will remain low until the market takes
account of China’s much smaller exports
and of the dive in US stocks.
However, prices will rise significantly in both
2004 and 2005 as demand overtakes supply. In fact,
once South Africa has disposed of its surplus,
white maize prices should recover their premium
of US$5 to $10 per tonne over yellow maize.
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Cocoa
Cocoa prices fell sharply from the 17-year high in late 2003.
This was because the prediction that there would be a hefty
deficit and serious disruption to Ivory Coast shipments (the
dominant producer) turned out to be incorrect.
Nevertheless, prices remain well above the 27-year low touched
in 2000.
Assuming fair weather conditions and no deterioration in
the Ivory Coast’s security situation – either
of which would prompt strong buying by industry and make the
outlook much more bullish – relatively stable conditions
lie ahead. However, expect an underlying upward turn in prices.
This is because, while stocks rose modestly in 2002/ 2003,
they declined in relation to annual consumption.
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