Contracted margins will continue into 2024 for global arable farmers despite recent decreases in key operating costs, Rabobank suggests.
The outlook is good for soybean farmers, but not so much for maize and wheat, according to the multinational agri-bank's report.
Published today (14 December), it says that soybean farmers are likely to achieve good margins in the coming season.
However, maize producers will feel their margins pressured by ample supply, while wheat farmers are unlikely to see improved margins despite declining costs.
During the past couple of years, farmers have faced rising production costs due to disruptions in molecule production during Covid lockdowns and increased crop protection costs.
The war in Ukraine further spiked fertiliser prices to record highs, while operating margins slightly decreased, favourable commodity prices buffered the impact in 2022.
In the third quarter of 2023, grain and oilseed prices began to decline. This followed the confirmation of record soybean and corn production in Brazil, coupled with reasonable assurances of a satisfactory crop in the US for 2023, preventing further stock decline.
Despite fundamental factors favouring a price decrease, notably the increased corn and soybean stocks, market trends indicate a pivotal point, Rabobank says.
Uncertainty arises from factors such as record crops in Brazil, 'adequate' crops in the US and Europe, and expectations of another record Brazilian crop in 2024.
The report notes that global domestic demand for key crops declined for the third time since 1980/81, pointing to building stocks and decreasing prices.
Corn and soybean stocks increased, while wheat and rice stocks continue declining. Weather challenges and geopolitical instability coupled with economic uncertainty prompt consideration of a risk premium in the market.
Despite Ukraine’s comparable or improved corn and wheat crops, the discontinuation of the Black Sea Grain Initiative has cut off a crucial export gateway, Rabobank warns.
Ukraine, once heavily reliant on Black Sea ports, has diligently diversified, now dispatching around 60% of its commodities via seaports.
Despite ongoing challenges from war, Ukraine's agricultural exports face impediments, the report notes, with bans from Poland, Slovakia, and Hungary persisting despite the EU lifting restrictions in September.
In terms of price risk, the corn market exhibits the least upside potential, with wheat presenting the highest, Rabobank says, with soybeans falling in between, indicating an equal likelihood of upside and downside risk.
The prevailing market uncertainty ensures that price volatility is an inevitable certainty, the agri-bank's concludes.
