Agriculture Prices Slump After Emerging Market Currency Weakness

Agricultural commodities fell to the lowest in almost one year as weakening currencies in emerging markets heightened speculation that farmers from Brazil to Indonesia will boost exports, adding to supplies.

The Standard & Poor’s GSCI Agricultural gauge of eight farm commodities including sugar, coffee and soybeans fell 2.3 percent by 5:10 p.m. in London, heading the lowest close since June 19, 2012. Nineteen of 24 emerging market currencies tracked by Bloomberg sild against the dollar by an average 3.2 percent in the past month.

Supplies of everything from soybeans to wheat are set to increase this year as planting rebounded following droughts in the U.S. and Russia in 2012. The global sugar surplus will be a record in the 12 months ending in September, the International Sugar Organization in London estimates. Weaker currencies make overseas sales prices in dollars more attractive.

“The currency moves made everything a little more bearish,” Kona Haque, an agricultural commodities analyst at Macquarie Group Ltd., Australia’s biggest investment bank, said in an interview in London yesterday. “Sugar and coffee are likely to see more selling pressure as so much of the exports come from emerging markets.”

Brazil is the world’s top exporter of sugar, soybeans and coffee, and the real is the second-worst performer of 24 emerging market currencies in the past month. Concern that the U.S. Federal Reserve will curb its bond-buying program has boosted the dollar, said Michael Henderson, an emerging markets economist at Capital Economics in London.

Indian Rupee

The South African rand, Brazil’s real, the Indian rupee and the Mexican peso have all depreciated more than 5 percent in the past month, while the price of arabica coffee tumbled 14 and raw sugar fell 4.1 percent in the period.

Supplies of agricultural commodities from sugar to wheat have been climbing as farmers boost plantings. Global cereals production will be a record 2.46 billion metric tons this year, while the forecast for oilseeds output points to a balanced situation, the United Nation’s Food & Agriculture Organization said today. The sugar surplus will be 10 million tons, ISO says.

“The size and speed of the recent falls in emerging market currencies have caught many in the market by surprise,” Henderson of London-based researcher Capital Economics said in a report e-mailed yesterday. “Concerns about a tapering of asset purchases by the U.S. Fed have led to a rush of outflows from emerging markets.”

Brazil’s Role

Brazil, the world’s leading sugar, coffee and soybean exporter, boosted shipments of the three commodities by more than 10 percent last month from a year earlier, data from the government and the country’s coffee exporters’ council showed. Coffee shipments from Indonesia’s Sumatra, the main growing region of the world’s third-biggest producer, surged 58 percent in May from a month earlier, the provincial trade and industry office said in a statement on June 3. The Indonesian rupiah, down 1.5 percent in the past month, prompted the central bank to unexpectedly raise its key interest rates yesterday.

Falling emerging market currencies are making it cheaper for farmers to expand output. The cost of producing soybeans in Brazil fell to $12 a bushel from $12.90 a bushel four months ago as the real weakened, according to Macquarie. That prompted the bank to raise its forecast for soybean production in the South American nation to 86 million tons from a previous estimate of 84 million tons, it said in a report yesterday.

“The falling real has already lowered the cost of production for soybeans,” Haque said. “The same impact will be true for sugar and coffee.”

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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