Agricultural prices set to plummet in the coming years – CE

Following a spectacular rebound from pandemic-induced lows, economists at Capital Economics continue to expect that most commodity prices will be falling again by end-2021. Although growth in demand should be strong as the global economic recovery gathers pace, the recent price gains will incentivise supply. This is particularly the case for agricultural commodities, where output can respond quickly to prices.

Agriculturals are now close to a peak

“The rise in prices over the last year will lead to an increase in both planting and harvesting over the next eighteen months, which should boost the supply of most agriculturals, particularly the major grains. Accordingly, we forecast that most agricultural prices will decline over the next few years.”

“Although global demand for animal feed is likely to hold up strongly in the near term, we think that the price of soybeans will be much lower by end-2022 for two key reasons. First, we anticipate that demand growth will slow considerably in top-consumer China. Second, as La Niña conditions dissipate and high prices incentivise planting, we expect that the supply of soybeans will continue to grow in 2021-23. Putting all this together, we forecast that the global soybean market will swing into a surplus soon, which would give a lift to global stocks.”

“We forecast that the price of wheat will tumble from 725 US cents per bushel currently to 475 by end-2022.”

“The progressive easing of quarantine measures should allow lumber mills to return to full capacity later this year, which we think will cause US lumber prices to plummet.”

“We are also positive on the outlook for demand of the more ‘luxury’ agriculturals, such as coffee and cocoa, as the global economic recovery gains momentum. That said, prices have already risen sharply and we think the scope for further gains is fairly limited.”