Agricultural markets ‘undervaluing risk’, says Rabobank

18-Jan-2013 - Last updated on 18-Jan-2013 at 12:28 GMT

The supply and demand balance remains highly uncertain for most agri-commodities – but this is not reflected in futures prices, according to a new report from Rabobank.

The financial services firm says that stimulus packages worldwide have increased liquidity and optimism in the sector. However, record-low stock levels – particularly for oilseeds and grains – mean that the market is still at risk of price volatility in the year ahead.

“Agricultural markets appear to be undervaluing risk, with stock levels reduced and the production outlook uncertain while price volatility has fallen to multi-year lows,” Rabobank said in its latest monthly agri-commodities report.

“Longer term volatility in agricultural markets is also on the rise as the world’s incremental demand growth is being met by less reliable production regions,” it said.

World grain markets are relying more on supplies from the region around the Black Sea and South America, which also tend to have the most volatile weather, it said.

For sugar, the market is fundamentally oversupplied, according to the report, although Rabobank’s economists predict that market concerns will restrict prices from falling below about $0.18 per pound.

“Both short and long term trends suggest markets are failing to accurately reflect likely volatility in agri markets,” it said.

The full report is available online here.