Crop prices are rounding out their biggest monthly advance in more than five years on China’s buying spree and concerns about South American dry spells.
A Bloomberg gauge of grains and soft commodity spot prices rallied almost 9% this month through Friday, on pace for a sixth straight monthly gain. The La Nina climate phenomenon has curtailed rainfall in Brazil, the top grower of soybeans, coffee and sugar, sparking output concerns at a time when China’s feed-grain demand is booming.
“South America’s weather continues to provide moisture for crops on an almost just-in-time basis,” Tobin Gorey, commodities strategist for Commonwealth Bank of Australia, said in a note. “The nagging doubt, though, is that the just-in-time rain is a good run of luck, rather than something that can be relied upon.”
Soy futures have jumped 12% to $11.865 a bushel in Chicago this month, the largest increase since 2016, and corn is up 9% in November. Arabica coffee has soared 18%, and New York sugar is set for the longest streak of monthly gains in 14 years.
While a Chinese government official rebuffed the idea that its massive grain imports are fueling an international price spike, a Rabobank outlook last week said surging import demand and weather worries could extend agriculture’s bull run into 2021. China’s corn and soy demand may climb further in the coming season and countries are bolstering stockpiles to guard against food inflation.
China’s grain demand has been fueled by an unexpectedly fast recovery in hog herds after they were devastated by African swine fever, and the country’s economic recovery. Local prices of corn and food soybeans on the Dalian exchange are trading at or near records. A weaker dollar coupled with a strong yuan is also making purchases of American farm products by China more attractive.
Still, there are signs of easing demand in the short-term, with some U.S. soybean cargoes canceled after the rise in prices. Wheat futures traded lower on Monday, with Russia considering raising a grain-export quota that’s been proposed for mid-February through June.
For sugar, there are concerns of a bigger-than-expected global deficit with lower crop outlooks from Thailand, the European Union and Russia, amid uncertainty over the size and timing of Indian exports. Dry weather is seen impacting Brazil’s Center-South cane yields in 2021-22, and the market will be watching out for the impact of La Nina in the first quarter, according to Rabobank.
Raw sugar futures were steady at 14.79 cents a pound on Monday, set for a seventh straight monthly gain.
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