What’s on the menu for agri-commodities?

Prerna Sharma | Updated on January 19, 2018



2016 may see select food crops such assugar and wheat gain

Between 2000 and 2011, global agri-commodities enjoyed an untrammelled 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. With this big picture scenario in mind, what will 2016 bring for individual commodities? Here’s an assessment.


Tur (kharif) crop harvesting has already begun in the key States of Maharashtra and Karnataka, but arrivals are low and prices are already at double the levels of December 2014. Moreover, a very poor chana (rabi) crop quality is expected in Karnataka despite increased acreage due to soil moisture stress. Additional triggers would be the fall in global output due to drought in Myanmar, Canada and Australia. However, continued stock limits on traders and the Centre’s determination to contain prices of pulses through increased imports will ensure price gains in 2016 won’t be as high as in 2015.

Oilseed & oils

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.

El Nino-induced dry weather in Indonesia and Malaysia (accounts for 85 per cent of global production) together with forest fire in Indonesia will impact production of palmoil.

Thus, a decline in the global stock-to-use ratio and firm demand will strengthen palmoil prices this year. However, subdued demand for bio-fuel due to low crude oil prices will limit any price rise.

Soyabean oil prices may remain broadly in range with enough supplies and a likely demand shift from palmoil buyers on rising palmoil prices.


India’s production is expected to contract to 26-27 million tonnes (MT) due to lower acreage and damage to crops in Maharashtra and Karnataka. Thai sugar production is likely to decline for the first time in five years.

Brazil’s adverse weather conditions during the harvesting period will also add to the global production deficit. However, existing global sugar stocks at over 85.4 MT and a weaker real may restrict price gains.


Cotton fell below ₹14,000/bale at the start of 2015 on de-stocking and import curbs by China. Year 2015 ended with unexpected export demand from Pakistan.

While world cotton production is estimated lower in 2015-16 for the fourth successive season, additional spinning demand may come from Vietnam and Bangladesh.

As a result, we don’t see any reason for further weakening of cotton prices.


India’s rabi wheat acreage is down 7 per cent until end-December. Top wheat growing states, such as UP, MP and Punjab, recorded a winter rainfall deficit of over 60 per cent with adverse implications for yield. However, global wheat supply for 2015-16 is estimated at a record high of 734.9 MT.

Argentina removed its export duty on wheat in order to gain global export share. Lower growth in demand will add to existing stock piles but the recent bout of hail and frost in Australia, combined with bad weather forecast for the EU, may provide some support to wheat prices.


Significant reduction in acreage due to drought-like situation in Maharashtra, better export prospects and fast declining carry-over stocks may push turmeric up this year.

The writer is Vice-President and Head - Agriculture, Food and Retail at Biznomics Consulting.

Published on January 03, 2016

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