Subdued Agri-Commodities in 2016

Between 2000 and 2011, global agri-commodities enjoyed an untrammeled bull run. Rapidly rising prices in turn led to record levels of production year after year. Besides, populist hikes in the support and procurement prices of food grains in both China and India over-incentivised production and added to global supplies. The pile-up of stock eventually caught up with prices. Most agricultural commodities touched their all-time highs in the second half of 2011 and thereafter started to decline.
If you leave out a few commodities like pulses, 2015 saw one of the worst performances in recent years from the agri-commodities complex. Excess supply and cheaper fuel are likely to keep prices of many agri-commodities subdued through 2016. Reduced interest in commodities from financial investors is a dampener for the asset class too. Amid all this, 2016 may bring cheer for a select club of farm products.
Policy peculiarities
India is not exactly an open market for agri-commodities, and government interference in export, import and futures trading affects demand and supply of specific commodities and, in turn, their prices. Besides Chinese demand, other determinants of prices of agri-commodities are exchange rate movements, local weather conditions and their impact on domestic production. A relatively strong rupee against the US dollar, vis-à-vis currencies of countries like Argentina and Brazil, will influence the market too. The El Nino hopefully will taper off after March and will not affect India’s critical June-September monsoon.
India is a net exporter of agri-commodities and needs to watch recent developments at the WTO as well. Many analysts believe that immediate elimination of farm export subsidies by developed countries, as agreed at the WTO’s 10{+t}{+h} Ministerial at Nairobi, will increase international prices of agri-commodities, and boost India’s export competitiveness. However, most developed countries provide their farmers direct support, which is categorised as green box, i.e. non-trade distorting and thus they may not need to remove them. And top farm subsidiser, China has won time until 2018 to comply. Thus, the short-term benefits to India’s farm exports from the WTO will be limited.
Lower production of soybean domestically, expectations of improved demand from China’s hog industry and robust feed demand from dairy and poultry industries will make soyabean crushing profitable for millers. However, bumper crops in the US and Latin America, huge global stock piles, sluggish export demand for Indian soyameal and increased shipments from Argentina post- devaluation of the peso will contain the upside.
Source : Business Line