3 reasons for volatility in 2018 commodity prices
Much of what happened in 2017 seemed to point to 2018 as a big year for Canadian agriculture. Regardless of what will happen in the next 10 months, there are current rumblings that could spell unpredictability in prices and farm revenues.
Here are three potential sources of volatility in commodity prices for the year ahead.
- South American weather pattern
Argentina is dry, and getting drier. Their drought, ongoing since December 2017, has already helped to elevate soy prices. With estimates of Argentinian soy production in 2018 at less than 80% of the 2017 crop, it could produce a further spike. Meanwhile, heavy rains in Brazil may delay harvest there. Albert Einstein famously said, “God does not play dice”— but weather certainly can.
- Trade turf wars
With the Trump administration set to unilaterally impose tariffs on imported steel and aluminum, major ag producing countries should watch for possible retaliatory measures that involve ag commodities. Most notable among those is, of course, China, who could decide to tax U.S. exports, including soybeans. As the world’s largest importer of soy, China commands respect. The European Union, one of the world’s largest importers of ag commodities and food products is also considering action.
Any trade retaliation could send prices for ag commodities lower - and therefore impact revenues of Canadian producers.
- World economic growth: full steam ahead
The IMF has made several adjustments to their projections for world economic growth in 2018—and all upward. But, the fact they’ve moved their GDP growth expectations, now at 3.9% for 2018, multiple times is great news. It suggests the economic growth in emerging markets, currently projected to be 4.9% in 2018, may be dynamic enough to lift demand even more than is currently expected, and move prices.
Volatility could be significant in 2018 and, if so, may impact marketing plans of producers for the 2018-19 marketing season.
Next week, we’ll help you put this volatility into context, with a deep dive into the financial health of Canadian agriculture. Stay tuned for our March Financial Fitness series.
Martha joined the Economics team in 2013, focusing on research insights about risk and success factors for agricultural producers and agri-businesses. She has 25 years’ experience conducting and communicating quantitative and qualitative research results to industry experts. Martha holds a Master of Sociology degree from Queen’s University in Kingston, Ontario and a Master of Fine Arts degree in non-fiction writing from the University of King’s College.