Article 04 March 2020
Agricultural markets around the globe have drifted lower in 2020 as the virus COVID-19, large inventories, increasing concerns about cooling economic growth and mostly beneficial weather pressure values. Indeed, the agricultural market in general has been trending lower since the rally in 2010. The individual markets all have differing narratives, but if we look at aggregated indexes, we can see the scale of the decline in agricultural markets (this year and this decade). The indexes included in the graph (calculated and weighted by Bloomberg) are the aggregation of relevant futures markets to give an indication of the full spectrum of the agricultural market (and the sub-markets). The graph includes the Bloomberg agricultural index as well as the grain, softs, and livestock sub-indexes. Also, for comparison, the graph includes the Bloomberg commodity index, which includes crude oil, metals, and agriculture (all weighted by the size of the market).
While the fall in markets in 2020 is clearly visible the multi-year trend lower is also well-defined. The agricultural index is down 7% in 2020 (and 42% since 2010), with the livestock sub-index the worst performer in 2020, down 17% (to the lowest level ever in March 2020). The softs index has fallen only 3% in 2020 (buoyed by strong coffee prices) while grains have fallen 7% in 2020 after starting the year in positive territory. The general commodity index has fallen 11% in 2020, and while it remains much higher than the agricultural indicators, the index hit a two-decade low in February 2020.
The cyclical nature and exposure to volatile weather means the downward trend will reverse at some point in the agricultural markets; we have seen this phenomenon during the booms of the late 1990s, 2007 and 2010. The only question is what that impetus will be and what the scale of the bounce will be.
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