Key agricultural commodities hit multiyear lows last year after several years of strong harvests, but some experts have a mildly optimistic outlook for 2017.
The case for the better outlook comes despite challenges that include a global glut of major ag commodities; bird flu problems outside the U.S. that could hamper feed demand; and the possibility of President-elect Donald Trump changing policy on ethanol, given that a sizable share of the nation’s corn and soybean supplies are used to produce biofuels.
“In general, the commodity complex is poised to move higher,” said Robert Chesler from a Chicago-based commodity-risk management company. He sees “more piling into commodities again as an asset class,” and also noted that many commodities are generally at “relatively low prices on a multiyear basis.”
Some traders remain cautiously upbeat on the ag commodity outlook despite last month’s U.S. Department of Agriculture crop production report showing that a global bumper crop is expected of corn, wheat and soybeans; a possible shift in acreage from corn to soybeans this year by American farmers could present additional downward price pressures if soy demand isn’t met.
China’s appetite for American soybeans was exceptionally strong last year and U.S. exports set a record. China uses some of the soybeans for feeding livestock, including for its growing hog production.
“We’re definitely optimistic on grains and oilseeds,” said James Cordier from an investment firm in Tampa, Florida. That said, he doesn’t expect agriculture to be the big star in the commodity space but is still upbeat on the prospects for corn and soybeans to have a “20 to 25 percent rally this year.”
“The very beginning of the year is a telltale sign of where investors think the markets have the most value,” said Cordier. “They usually do a good projecting where demand is going to be [later in the year].”
Another determinant of crop prices will be the weather. As always, it can lead to volatile prices during the growing season.
“It’s really going to be a weather-dependent market in corn going forward,” said Ted Seifried, chief market strategist from Zaner Ag Hedge in Chicago. “We do have good demand, but supplies are plentiful after three years of record or near-record crops.”