Weak demand and sluggish growth to keep lid on 2012 commodity prices, analyst

Francisco Redruello, senior food analyst, packaged food, at Euromonitor International, notes that wheat output projections are still forecast to be very strong for the 2011/2012 season.

The commodity market specialist, in his monthly review, said Russia is likely to increase its wheat production by almost 15 million tonnes, and Kazakhstan by almost 9 million tonnes.

Skimmed milk powder​

While there was a small rise for skimmed milk powder - up 2% - in November, the food sector specialist said this is not the start of a trend.

“We’d rather say this is the result of a technical adjustment ahead of the Christmas season, when demand for chocolate products typically picks up. There is still a large amount of milk powder coming from US and Oceania on the back of high prices and weak demand for liquid formats in developed markets. ​

Redruello added that data from Global Trade Information Services indicates that China's whole milk powder imports fell below 8,000 tonnes in September.

“This is a fifth successive month-on-month decline and the lowest figure since December 2008. If this decline extends to other milk powder formats, we could see lower prices for skim milk in the coming months,”​ said the food sector analyst.

Cocoa ​

Cocoa futures declined by 11% in November, almost one third lower than at the beginning of the year. Redruello puts this development down to a combination of good weather and political stability in Western African countries, especially in the Ivory Coast and Ghana.

The result of these events, he continued, will be around half million tonnes more of cocoa beans in the market next year and that coupled with very sluggish demand for chocolate confectionery in developed economies should keep cocoa prices down.

“According to Euromonitor Internationals’ projections, retail volume sales of chocolate confectionery in countries like the US, for instance, will decline by 5% in 2012,” ​added Redruello.

However cocoa powder, he notes, is certainly outperforming cocoa butter in terms of prices.

“Despite the steady decline seen since May this year, we are still around 2% higher than in January. Cocoa powder has been more resilient to news of bumper crops because of strong demand for cocoa-intensive indulgence products in Asia Pacific. ​

Chocolate-based flavoured powder drinks in this region, for instance, will rise by 16% in retail volume between 2011 and 2016, according to Euromonitor International’s projections,” ​reported Redruello.

Sugar ​

Looking to sugar, he said there is plenty on the market, and traders are thus not feeling bullish about future prices.

Redruello added that the latest data available shows around three million tonnes of accumulated stocks in India, and that that needs to be exported.

He explained that sugar stocks in another major sugar producer, Vietnam, are close to those of India so that it is going to take some time [for the market] to absorb the current level of stocks, and that is being factored in on price expectations.