MARKET DEVELOPMENT
Weaker Prices May See Funds Quitting Ags - World Bank
Weaker Prices May See Funds Quitting Ags - World Bank
23/10/2015 (AgriMoney.com) - The prospect of weaker returns may prompt an exit by funds from agricultural commodities, the World Bank said, downplaying the prospect of El Nino causing rises in world crop prices.
The bank, in quarterly outlook on food commodity prices, said that "investment fund activity, which was on the rise for almost 15 years, has stabilised at just below $320bn".
However, this level of investment, drawn from data by Barclayhedge, may be about to fall thanks to weak price prospects for raw materials.
"The continuing weakness in prices across the entire commodity spectrum is likely to induce an outflow of funds invested in commodity markets," the World Bank said.
Other indicators
The comments in fact contrast with data from the venture capital sector of an increased interest, with food and agriculture sectors combined attracting a record inflow of more than $480m in the July-to-August period, according to Dow Jones VentureSource.
Recent launches include Chicago-based S2G Ventures, which this week announced closure of a $125m food and farming fund.
However, some other data do indicate reduced interest with, for example, open interest held by managed money in futures and options the top 13 US traded commodities standing at 1.35m contracts as of last week, according to Rabobank.
That is down 19.3% year on year, albeit exactly in line with open interest – the number of live contracts –held at the beginning of 2015.
'Unlikely to cause a spike'
The World Bank made its comments as it deepened to 13.0%, from 10.7%, its forecast for the drop in agriculture prices this year.
The forecast for grain prices suffered a particular downgrade, with values now seen falling by 14.5% compared with a previous estimate of 9.2%.
The bank acknowledged that the El Nino weather pattern, linked to weather anomalies in a range of countries, "may be the strongest since detailed data have been available".
However, while localised ag markets could be affected, the El Nino was "unlikely to cause a spike in global agriculture prices".
The report cited "ample" supplies of major agricultural commodities, besides the "limited" impact of previous El Ninos in lifting prices.
"Even during the 1997-98 episode, the strongest in recorded history with estimates worldwide damages estimated at $34bn-35bn, [agriculture] prices declined."
Price forecasts
The bank reduced price expectations for a range of agricultural commodities, including wheat which, for the US hard red winter type, it cut its expectations for this year by $30 a tonne to $205 a tonne, and for 2016 by $27 a tonne to $211 a tonne.
In the oilseeds sector, the forecast for palm oil prices were particularly heavily reduced, by $55 a tonne to $615 a tonne for this year, and by $51 a tonne to $631 a tonne for 2016 – even as some other commentators are turning more upbeat on values.
Among soft commodities, the forecast for arabica coffee were reduced heading into 2020 - albeit to a uniform $3.50 per kilogramme (159 cents per pound) which is above the New York futures curve - foreseeing the prospect of a "return to a surplus in 2015-16" in world production.
Cocoa was one of the few ag commodities to see a, small, increase in the price outlook - by $0.05 to $3.10 per kilogramme for this year and by $0.11 to $3.02 a kilogramme for 2016 – with the bank citing successive production deficits in 2014-15 and 2015-16.
The bank, in quarterly outlook on food commodity prices, said that "investment fund activity, which was on the rise for almost 15 years, has stabilised at just below $320bn".
However, this level of investment, drawn from data by Barclayhedge, may be about to fall thanks to weak price prospects for raw materials.
"The continuing weakness in prices across the entire commodity spectrum is likely to induce an outflow of funds invested in commodity markets," the World Bank said.
Other indicators
The comments in fact contrast with data from the venture capital sector of an increased interest, with food and agriculture sectors combined attracting a record inflow of more than $480m in the July-to-August period, according to Dow Jones VentureSource.
Recent launches include Chicago-based S2G Ventures, which this week announced closure of a $125m food and farming fund.
However, some other data do indicate reduced interest with, for example, open interest held by managed money in futures and options the top 13 US traded commodities standing at 1.35m contracts as of last week, according to Rabobank.
That is down 19.3% year on year, albeit exactly in line with open interest – the number of live contracts –held at the beginning of 2015.
'Unlikely to cause a spike'
The World Bank made its comments as it deepened to 13.0%, from 10.7%, its forecast for the drop in agriculture prices this year.
The forecast for grain prices suffered a particular downgrade, with values now seen falling by 14.5% compared with a previous estimate of 9.2%.
The bank acknowledged that the El Nino weather pattern, linked to weather anomalies in a range of countries, "may be the strongest since detailed data have been available".
However, while localised ag markets could be affected, the El Nino was "unlikely to cause a spike in global agriculture prices".
The report cited "ample" supplies of major agricultural commodities, besides the "limited" impact of previous El Ninos in lifting prices.
"Even during the 1997-98 episode, the strongest in recorded history with estimates worldwide damages estimated at $34bn-35bn, [agriculture] prices declined."
Price forecasts
The bank reduced price expectations for a range of agricultural commodities, including wheat which, for the US hard red winter type, it cut its expectations for this year by $30 a tonne to $205 a tonne, and for 2016 by $27 a tonne to $211 a tonne.
In the oilseeds sector, the forecast for palm oil prices were particularly heavily reduced, by $55 a tonne to $615 a tonne for this year, and by $51 a tonne to $631 a tonne for 2016 – even as some other commentators are turning more upbeat on values.
Among soft commodities, the forecast for arabica coffee were reduced heading into 2020 - albeit to a uniform $3.50 per kilogramme (159 cents per pound) which is above the New York futures curve - foreseeing the prospect of a "return to a surplus in 2015-16" in world production.
Cocoa was one of the few ag commodities to see a, small, increase in the price outlook - by $0.05 to $3.10 per kilogramme for this year and by $0.11 to $3.02 a kilogramme for 2016 – with the bank citing successive production deficits in 2014-15 and 2015-16.