As 2012 comes to a close, Wall Street begins to look ahead to the coming year and what trends will have the biggest impact on the commodity world. Financial behemoth Citigroup (C) recently came out with an all-encompassing forecast for the next two years for almost every major commodity. Of particular interest was their outlook on ags, as these commodities have been on a wild ride for 2012; one of the hottest summers on record and an extended drought sent futures all over the board [for more agricultural news and analysis subscribe to our free newsletter].
Corn to Stagnate
This yellow commodity has been a favorite for traders around the industry given its laundry list of uses in our everyday lives. After this year’s less-than-optimal crop yields, corn prices surged more than 20% on the year, with the bulk of those gains coming in the summer months. Citi sees high prices holding for the first half of 2013, as there will be a lower demand for livestock feed because of smaller populations as a result of the drought. From there, the institution is predicting record planting for the rest of 2013 and 2014, which will bring prices down to a more normal level.
Wheat Will Rise
This major grain averaged $7.60/bushel this year, and Citi sees that rising to $8.60 for 2013 and cooling down to $7.75 the year after. “While the issues for the major row crops have been local and centered about the U.S. farm-belt, the buoyancy of wheat is a global phenomenon driven by disappointing production outlook and export availabilities in the Black Sea, Australia and Argentina,” Citi commented [see also The Surging Demographic Trends Behind Grain Investing].
Soybeans Go Back and Forth
In a similar pattern to wheat, Citi expects soybeans to rise in 2013, only to fall the year after. Averaging $14.90/bushel in 2012, this commodity is expected to jump to $15.00 in 2013 but fall back to $13.35 the following year. Prices for soybeans have declined as of late due to an improvement in production in the United States as well as South America. Trade is expected to pick up next year, which could help boost prices, along with the weather uncertainties of Latin America and their harvests.
Weather Will Trump All
Though Citi’s predictions are solid based on the data and trends available, the movements of these commodities will ultimately come down to weather. With weather being almost impossible to predict long term (as evidenced by a number of natural phenomenons in 2012), there is no sure thing in the agricultural world. If you are invested or thinking about investing in any of these commodities, remember to keep an eye on weather in key areas around the globe, as that will be the ultimate driver behind price movements.
Disclosure: No positions at time of writing.