Important soft agri-commodities like soybean, cotton
, sugar, wheat and palm oil have fallen between 11-40% from their recent highs. And most of these commodities are trading near the pre-war level prices-which were taken from mid-February, since Russia officially invaded Ukraine.
On the domestic front as well the Government of India has set limits on exports of wheat, sugar etc. to stabilize prices and maintain enough for domestic consumption. FMCG stocks will also be in focus as their margins are expected to rise due to the fall in soft commodity prices, especially wheat which contributes 40-60% of the total costs for biscuits.
Even edible oil rates have been slashed by Ruchi Soya
and Adani Wilmar
between 10-15% across product categories.
Malaysian palm oil futures were trading around the MYR
4,700-a-tonne level, bouncing off a six-month low around MYR 4,500 amid some technically-driven buying rather than signalling a tangible change in sentiment. Indonesia has recently announced an export acceleration scheme to ship at least 1 million tonnes of crude palm oil and derivatives.
The world’s biggest exporter also reduced the maximum export tax rate and levy for crude palm oil to $488 per tonne from $575 per tonne to boost shipments. A slump in crude oil is adding to the bearish sentiment. Recession fears triggered by an aggressive tightening from major central banks to rein on record-high inflation sent the benchmark WTI to levels not seen in a month.
Soybeans futures extended losses to $16.2 per bushel, the lowest in six weeks, dragged down by concerns about a possible recession and prospects of higher supply. In Mato Grosso
, the biggest producing state in Brazil soy output was above average this season.
Still, soybeans prices remain close to record levels of $18 hit in the second week of June amid concerns that hot weather in the US could damage yields, alongside high demand from top importers and tight supplies from major producers.
Cotton futures at ICE were trading lowest in 13 weeks amid prospects of weak demand. Demand for cotton is seen lower among the stockists and traders due to high inflationary pressures and as new limited lockdowns are re-imposed in top consumer China as it sees a fresh burst of Covid cases. Wheat prices have seen a slight correction as Europe
and US starts the new harvest.
With all these factors in play, price volatility looks set to remain on the cards. The war in Ukraine is providing the floor for the market, but if the Northern Hemisphere
harvest continues at this pace and demand remains subdued, we may well see any significant price increases capped.