International Food Products’ experts recently presented a close look at the forces shifting the oil, cocoa, sugar and flour markets. At last week’s webinar, popular with top food executives and purchasing directors, oil expert Michael Lane, cocoa trader David Gerfen, sugar manager Bill Holtgrieve, and flour executive Carl Zimmerman revealed the latest news and predictions for key commodities’ supply and pricing. If you missed it, view here, and read our wrap-up:
Oil
Currently, soybean futures are trading sideways in an $8.70 – $8.90 range. Soybean crop predictions for Brazil and Argentina are expected to be robust due to healthy crops. A positive for US buyers is the strength of the US dollar. Preliminary estimates are that soybean acreage will be higher than last year and corn plantings will be lower. Even with healthy production and stock numbers, soybean oil prices will remain locked – paced with crude oil markets. Cash soybean oil basis should remain steady to soft thorough the first half of 2016 with higher basis levels in Q3 and Q4. Canola oil prices will have a spread that becomes narrow with soybean oil, given the favorable US$/CDN$ exchange. We expect relative strength in the corn oil to soybean oil spread, given relatively stronger export activity for corn oil. For soybean oil futures, aside from crude oil price volatility, we expect a Q1 range between $.3030 and $.3130 per lb.
Cocoa
Buyers for 2016 already have coverage for 50-75%. 10/12 natural cocoa powder was up 21% year over year. This equates to $1.01 per lb in January 2015 versus $1.22 per lb in January 2016. For the next two months, powder will most likely trade between $0.05 – $0.10 per lb. Further out, there is more upside potential on powder prices than downside. Cocoa powder will be available but keep an eye on the lead times and variance in prices, especially for specialty cocoas such as black. Look into a distributor with floor stock to help your production schedule.
Sugar
The domestic sugar market is in a bottoming process and has gone lower than what we originally thought. There was a big beet and cane crop and enough wasn’t sold, so they needed to clear storage out, which lead to the lower prices. Refineries are more booked than most realize and have a good book on for 2016 and partial book on for 2017. Mexico will have a smaller crop, quite possibly in the 5.8-5.9 mmt range. There will be less sugar for the Mexicans for bring across and this could lead to tightening in the market. We believe the #11 world sugar market will turn around later this year. Keep a close watch on a possible shift to non-GMO sugars. There has been some traction on the west coast for demand. Beets will have to go back to growing non-GMO if they want to protect their market share, which will change yield. Cane, unlike beet, will be able to market as a non-GMO and the range will change between the two. Since we are bottoming out, it’s a good time to buy. Looking out toward 2017, we think buying now would be to your advantage. Very limited downside, if any, left.
Flour
The wheat market has stabilized, and we expect steady pricing in 2016. Export demand for US wheat is at an all-time low. World wheat production is projected to be very high. As the dollar rose, wheat futures declined because the dollar made our exports more expensive. US hard winter wheat is off to a good start, although acreage is lower this year. About 7% fewer acres were planted this year versus last but there is still a lot of wheat in the world, so it hasn’t had an impact on pricing. We recommend contracting through at least Q3 of 2016.
