Prospects for popular soft commodities in 2023

After the war in Ukraine had led to a spike in commodity prices across the board, traders in the financial market shifted their attention toward this industry. On top of that, we still live in an economy that depends on commodities, meaning large swings in prices could impact the balance between supply and demand.

The topic of energy prices has been discussed widely, but the effect of the war on commodities for some reason was neglected, so that’s what we are going to focus on. If you are interested in the topic, or maybe you just want to learn more about it, stay tuned and read some insights into coffee, sugar, soybeans and cocoa.

Coffee

Coffee prices have been falling and according to recent forecasts, the bearish trend should continue in 2023. More specifically, Arabica coffee prices are expected to drop by 12% this year, mainly due to an increase in Brazilian production.

 

 

Brazil is still the largest coffee producer in the world and its coffee crop for 2023/24 is projected to increase to 67.1 million 69 kg bags, up from 61.5 million bags for the 2022/23 crop. Unlike the energy market, where tightness continues to keep prices elevated, that's not the case with coffee, according to experts working at Main Group FX, a regulated retail brokerage covering commodities among other CFDs.

Sugar

When it comes to sugar, analyst expectations are mixed for 2023. While there are bearish indications due to a surplus, hence weaker prices, lower-than-expected production in some key countries could turn the tide.

Once again, Brazil is the largest producer in the world and its higher production for this year is expected to compensate for a shortfall in India’s sugar production, the second-largest producer. Thailand is another major exporter that already projected lower year-over-year production levels for sugar.

Global supplies were strained by weak supplies from the European Union, the world’s largest supplier of beet sugar. A nearly one million tons shortage of sugar is another reason why prices remained relatively elevated as of late.

Soybean

News regarding global soybean production is not encouraging either. The US Department of Agriculture forecasted 383 million tons of soybean production for 2023, which will be a five-year low.

The main drag on production capacity is the diminishing prospect for the soybean crop in Argentina, currently experiencing a severe drought. Analysts at the regulated brokerage MainGroupFX believe that as production remains subdued, prices should stay elevated unless demand starts to weaken materially. The US and Brazil are expected to offset the Argentinian shortfall thanks to an increase in domestic production, yet that’s still not enough to cause the market to be balanced this year.

Cocoa

Another volatile commodity is cocoa and based on current forecasts, that shouldn’t change in the near future. On one hand, there were reports suggesting that the North American cocoa grind, a measure of demand, fell by more than 8% in Q4 2022, which should be bearish for prices. On the other hand, in February 2023 Ivory Coast restricted cocoa beans purchases, meaning 20 major traders are no longer able to export after reaching their buying limit.