February 16, 2019/Proshare Research
Insights for the commodity markets are also critical in the New Year 2019 as this will be a major theatre of trade engagement as traders in primary export goods will be hemmed in by shrinking global trade relations and slower Asian growth. Critical points to note include:
– At the start of 2018, we had to contend with the backlash effect from the 2017 USD crisis and a slump in global commodity prices. Due to those two major factors, local commodities were significantly higher priced than the import parity price leading most manufacturers to use imported products, and making the commodity market effectively bearish.
– The 2018 Wet season cultivation was a good one for most crops across the country, and the resultant harvest was decent to great. However, most irrigated Paddy rice farms were flooded, and up to a third of the season’s output was lost due to this. Soybeans remained a deficit crop, with national supply amounting to less than half of demand, and prices yielding up to 120% annualized season (harvest in November) to date.
Commodity traders expect the bullish trend in the grains market to continue through H1 2019. Also, with a gloomy harvest predicted in some Cocoa producing states, and a likely recovery from the 2017/2018 slump in cashew prices, traders expect a bullish trend in the export crops sub-sector.
– On the exchange, market operators tend to be scaling the impact of input programs, for example AFEX, hopes to reach 50,000 farmers in 2019, and grow from there. They will also launch the first Commodities Index in Africa in January 2019, as well as other instruments for investors interested in gaining exposure to commodity backed assets.
– The year 2019 will witness a new strategy for agriculture in Nigeria. Regardless of the outcome of elections, there are high chances of a modification of the Green Alternative strategy, and this may attract increased investment in agriculture or otherwise. Furthermore, the government’s recent embargo on NPK may create shocks in the Fertilizer supply chain, restricting availability of products and increasing prices. This may affect agricultural output in the coming season.
– On the part of exports, continued delays at the port coupled with likely constraints in logistics around the election periods may have a negative effect, which may also extend to the cost of raw material crops.