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Stock and commodities markets
Unfavorable Weather May Cause Price Rallies In Food Markets
06 August 12:02 PM
Droughts or floods are always force majeure for food commodities. Markets go volatile while analysts have a hard time telling us whether a certain market has reached the top.
What food commodities may appreciate in the near future because of unfavorable weather conditions around the globe? Eugene Olkhovsky, Masterforex-V Academy’s leading expert in capital markets will try to answer this question.
Droughts - Major Threat To Global Economy
Some markets, which could have supported the global economic recovery, now seem to be jeopardizing it, Mr. Olkhovsky explains.
Food inflation is growing at an unprecedented rate this year. The harvests of wheat, soybeans, sugarcane, coffee, cocoa, corn, fruit and vegetables are in danger due to unfavorable weather (droughts and heavy rains).
Obviously, many food products that are made from those food commodities are subject to inflation as well.
In a couple of weeks, some foodstuffs appreciated by several percent in the USA. American consumers are shocked. However, the USA is not the only country suffering from extreme weather.
All those weather disasters that are seen around the globe right now will have a major negative impact on the entire global economy.
According to Masterforex-V Academy, the global food market will suffer major losses this year:
The USA is the world’s major producer and exporter of corn and soybeans. No so long ago, the USDA published another forecast for this year’s harvest of corn and soybeans. The figures are bearish again:
· The harvest of corn is expected to shrink by 12% down to 12.97 million bushels.
· The harvest of soybeans is said to decline by 4.8% down to 3.05 million bushels.
However, this is not the final forecast. The figures may decline further as a considerable part of the acres is still in jeopardy. So far, the prices on corn and soybeans have increased by 30% and 50% correspondingly.
The situation in those two markets has already affected China’s market of meat as those two crops are frequently used as fodder. As a result, meat prices instantly appreciated.
The droughts in the USA have affected the food market of another Asian country – Indonesia. Due to higher prices on soybeans and meat, the rate of inflation in the country may increase by 0.7%.
India and Brazil: Poor Sugar Harvests of Sugar and Coffee
India is also seeing major problems with its harvest of sugarcane and other crops. A severe drought has been torturing India since May. For reference, India is the world’s second largest producer of sugarcane.
Analysts expect sugar prices to increase up to early 2013. The harvesting season will start on October 1st. The production of sugar may drop by 24 million tons.
The ICE sugar futures appreciated by 7.8%. In response, China, world’s major importer of sugar, had to reduce its sugar import by 20%.
India is a major producer and exporter of tea. The tea-growing regions of India are suffering from dry weather as well. Therefore, tea prices can grow in near-term perspective.
Brazil, another major producer of sugarcane, is suffering from bad weather as well. Extremely dry and hot weather in May-June was followed by continued heavy rains in July. The weather imbalance resulted in a 29% decline in sugar production (down to 6.7 million tons).
According to Masterforex-V Academy, the SD sugar futures contract is still bearish. The closest levels of support are 21,83 and 21,62. A trend reversal will become probable as soon as the price breaks and consolidates above the MF sloping channel and pivot (as shown below):
Brazil is the world’s major exporter of Arabica, the premium-quality sort of coffee. Unfavorable weather is affecting the harvesting campaign and the quality of coffee beans. In late July, Brazil gathered only 40% of the harvest.
Coffee prices are seeing a stable uptrend around the globe.
Will Africa Cause Chocolate Deficit?
Western Africa (Cote D'ivoire in particular) is suffering from droughts as well. As we know, this is a major cocoa-growing region. Chocolate producers may face a hard time getting cocoa, which is the main ingredient for making chocolate. Therefore, we may see a chocolate deficit, attended by higher prices for the sweet product.
Drought in Russia Affects Grains
Dry weather in Russia keeps affecting grains. This will result in higher prices for many foodstuffs. The Central Bank of Russia won’t be able to prevent the rate of inflation from breaching the 6% limit.
As we can see, many countries around the globe may see unfavorable weather undermining their economies. At the same time, the situation in such countries as Iran may become critical as poor harvests in combination with those tough sanctions imposed by the Western alliance may cause food shortage.
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