Rabobank predicts continued commodity squeeze

24-Oct-2010 - Last updated on 25-Oct-2010 at 11:57 GMT

Food manufacturers may have to face up to high sugar and corn prices over the coming year after food commodity prices shot up in October.

Analysing the recent spike in prices in its monthly overview of the commodities market, Rabobank said: “Tightening fundamentals and exchange rate movements played a major role in the price gains across a range of agricultural commodities.”

Corn supply estimates

In the corn market, prices rocketed up early in the month when the U.S. Department of Agriculture (USDA) slashed its corn yield and production estimates. Rabobank warned that prices could come under further pressure if yield estimates are downgraded further.

“Given the USDA’s historic tendency to make further downward revisions after reducing their yield estimates in October, corn prices will need to ration demand in coming months,” said the report.

Added to the US supply fears is risk from China as uncertainty remains about stock levels, raising fears that the country may have to implement a corn import programme.

Sugar market

Meanwhile supply problems are continuing to have a big impact on the global sugar market. Rabobank expects that sugar prices could remain high for some time to come.

“With continuing evidence of strong global demand, supply is expected to be tight for the next 18 months.” Concerns about the ability of supply keep up with demand are exacerbated by continued weather problems.

“Weather concerns in Brazil are still affecting the current crop and escalating the risk premium for the 2011 harvest. Domestic sugar prices also rose strongly in Brazil last month with the market responding to the tight domestic supply situation.”

Commenting generally about the state of the food commodities market, Rabobank concluded: “Prices now need to ration demand and encourage increased production in 2011/12.”