More Volatility on the Horizon For Agricultural Commodities

Insight Focus

After a long lull in grains pricing activity between 2014 and 2020, markets took a sharp turn with the onset of Covid. A series of high-profile events, such as the Russian invasion of Ukraine, increased protectionism, high energy prices and geopolitical shocks have injected volatility into the markets in the past seven years.

Over the past seven years, global wheat prices have followed a cyclical, event-driven pattern. Between 2019 and 2020, prices were relatively low and stable due to ample global supplies. A sustained rally began in 2021 as adverse weather and tightening stocks pushed values higher. Prices then surged sharply in early 2022, peaking above USD 13/bushel following the Russia–Ukraine conflict, which disrupted major export flows.

From mid-2022 onward, prices eased as exports resumed and production recovered. Between 2024 and 2026, wheat stabilised at moderately elevated levels, typically around USD 5.8–6.5/bushel, reflecting ongoing weather risks and resilient global demand.

Likewise, a sustained soybean rally began in 2021, driven by robust Chinese demand and tightening inventories. Prices remained high through 2022 amid supply constraints and broader commodity inflation, with futures trading above USD 15/bushel at peaks.

From 2023 onward, prices eased as global production—particularly in Brazil—expanded, improving supply availability. By 2025–2026, soybeans stabilised around USD 11–12/bushel, reflecting a more balanced market, though still sensitive to weather, acreage shifts and Chinese import demand.

Meanwhile, coffee and cocoa remained relatively stable in 2020, but coffee prices surged in 2021–2022, driven by drought and frost in Brazil and global logistics disruptions, with prices rising sharply from pandemic lows.

Cocoa remained comparatively stable until 2023, before entering an unprecedented rally in 2024, reaching record highs above USD 12,000/tonne amid severe West African supply shortages.

By 2025–2026, coffee prices eased on recovering supply, while cocoa prices corrected sharply from extreme highs as production improved, highlighting continued weather-driven volatility across both markets.

Amid a new era of agricultural commodity volatility, Carlos Mera, Head of Agri Commodity Market Research at Rabobank, discussed with us the current supply and demand risks impacting grains, coffee and cocoa. He shared insights into what we can expect in the short to medium term

Carlos Mera, Head of Agri Commodity Market Research at Rabobank

Why haven’t grains markets reacted to the US-Israel-Iran war in the same way as the Russia-Ukraine war?

I think some comparisons to the war in Ukraine are inevitable. But there’s a big difference that Ukraine and Russia were leading producers of wheat. And in the case of Russia, it was the biggest wheat exporter in the world. And it was potentially going to be affected by sanctions. So, for a few months, the wheat market was on tenterhooks, really worrying about a potential global food crisis that would affect the whole of Africa.

In the case of the war in Iran, we don’t have that direct effect, but we have several indirect effects, especially from the fertiliser side. Fertilisers, especially nitrogen fertilisers, tend to be produced in areas where energy is cheap. To separate nitrogen from the air, you need to cool the air to minus 183 degrees Celsius. For that, you need a huge amount of energy. So, suddenly, we have a shortage of fertilisers, particularly nitrogen fertilisers, but also phosphate. The Middle East is a huge producer of sulphur, which is used in the production of phosphate fertilisers.

The relationship between fertiliser prices and grain prices, or agricultural products, is certainly non-linear, and there’s a big lag. So, we’re not surprised that we haven’t seen the same effects on wheat prices, following the war in Iran, and following the war in Ukraine. There are major concerns, of course, but in the immediate term, the supply of wheat is actually quite good.

We are coming from a season with recorded a surplus of over 20 million tonnes, and we might be going to a season with an expected deficit of 9 million tonnes. The USDA is even lower. Having said that, there may be a big increase in Indian stocks. In the immediate term, there’s quite a lot of wheat around, so I’m not surprised we haven’t seen wheat prices increasing like energy prices.

Source: USDA

I have to say, there are many other indirect effects as well. High energy prices affect the whole supply chain. It affects shipping, it affects processing costs and it also affects consumers, because purchasing power is going to be affected. So, on the demand side, we’re also not surprised to see a weakening, and expectations being a little bit gloomier than before the war.

And in terms of fertilisers, how worried are you for the next harvest?

Corn is probably the hungriest crop in terms of nitrogen fertilisers. Although soybeans don’t need nitrogen, in Brazil the crop does need phosphate fertilisers, and phosphate fertilisers are going up in price. Based on sulphur prices, there is a case for expecting even higher phosphate fertiliser prices in the future.

Source: World Bank

To be honest, I’m not worried about wheat too much in the immediate term. The first major effect that we’ve seen is a drop in area in Australia and Argentina. By the US estimates, it’s dropping about 5-6% in both countries. We think the drop in actual planted area is going to be a little bit higher than that. However, that results in that 9 million tonne deficit that I mentioned earlier. By looking at next season, the big question is, is the current fertiliser situation going to impact next season plantings? And particularly, the crops planted in Q4. This includes summer corn in Brazil, corn in Argentina, soybeans in Brazil and Argentina, but also the northern hemisphere winter wheat, which are all key. In the US, I believe policy tends to keep area high because of reference prices. But we may see a larger drop in area in other places, like for example in the EU.

Do you think that China will continue to diversify away from the US for soybeans and other commodities?

I think it’s anyone’s guess. From the Chinese perspective, diversifying the purchases is good. At the moment, China is very much dependent on Brazil. I think it’s going to be very much opportunistic and part of a bigger negotiation going forward. I don’t think we know the full extent of any agreements, and I don’t think we can be certain it’s going to be one way or the other. I think it’s going to be some purchases from the US, but still buying the lion’s share from Brazil.

We do think the tension between China and the US is long-term. That’s a bank-wide view. We don’t think there’s going to be much relief. We think there might be some purchases from China as a sign of goodwill, but China will always be opportunistic. In the past, deals were not fully complied with, or the expected purchasing levels were not fulfilled. So, we are not too optimistic on that front.

Is there still enough demand coming from China for grains and other commodities?

I would imagine not. I think Chinese demand has been decelerating over a number of years. If you look at a decade or two before African swine fever hit China, Chinese demand was growing at 10% per year, give or take. After that, it’s growing at a much lower percentage point – at around 2-4%. China has been trying to diversify the feed, trying to lower its dependency on soybeans, trying to incorporate more grains and that results in less soybean demand. Chinese meat consumption is also already very, very high. In proportional terms, it’s not growing as much as before.

Do you think biofuels could be a growing demand centre for grains?

Yeah, but it depends country by country. Certainly, the war in Iran has triggered a number of mandate increases in different countries. We’ve had more than a 60% increase in the US biofuel mandate in March. That was by coincidence. But if you look at Indonesia and Greece, for example, biofuel mandates are increasing. Brazil did as well, in order to also contain energy prices locally. We might see more if we continue to see very high energy prices.

There’s been some surprise over how resilient both Ukraine and Russia have been so far – do you see any sort of risks that this could change?

That seems to be the case at the moment. At the start of the war in Ukraine, the world reached a consensus that putting sanctions on Russian agricultural and fertiliser exports was similar to sanctioning Africa into famine. So, we don’t expect to see sanctions on Russia. Russian exports will continue to flow. The economics of Russian wheat are not always perfect, but it still is the cheapest wheat producer in the world.

This season we expect more or less similar levels in both countries as last season. I think Russia will continue to export good amounts of wheat. What we might see is a move to a high wheat prices scenario, where potentially not only Argentina or Australia might suffer from high fertiliser prices, but potentially also places like the EU. In this case, I tend to believe Russia could be more assertive about who it sells wheat to.

Source: USDA

In the past Russia was very reluctant to let Ukrainian corn be sold to Spain, for example, because it was very much seen as an enemy of Russia. So, we might see that becoming more of a geopolitical play, and wheat being used as a weapon.

Ukrainian farmers have my utmost admiration for how they are still able to produce and export agricultural commodities in the volumes they are. And I think that they will continue to do so, because Ukraine has managed to protect a corridor that has been working very well, despite Russian aggression, and thanks to all the drone technology that they’ve been developing.

Could you briefly explain the structural issues and dynamics behind the cocoa price fluctuations?

In 2023, the crop surveys and pod counts started to come out with incredibly disappointing numbers. And ultimately production dropped by 14% in that 2023-2024 season. Cocoa is very inelastic, both on the demand side and also the production side. Cocoa used to be the one commodity that was sold forward the longest.

Normally, the typical buying period would be a year plus, in part because the two major countries would sell forward. In Ghana, the system is centralised. The physical cocoa is sold to the cocoa board, which is part of the government, and sold to buyers internationally.

In Ivory Coast, the country will auction rights to purchase the crop at the fixed domestic price. But there’s a lot of forward selling from origin, and because there’s a lot of value, there’s also a lot of interest to buy.

So, there was a lot of commitment already, meaning that demand was incredibly inelastic, and that 14% drop in production resulted in cocoa prices more than trebling at some point, going from USD 2,000-3,000/tonne in the years preceding this event, to up to USD 14,000/tonne in the front month in 2024. Since then, what we’ve seen is a trend to other producers outside West Africa to increase production.

And we’ve seen gigantic investments in plantations in Latin America – but not only Latin America. In most countries that can produce cocoa, and they have a liberalised sector. In West Africa, the response has been delayed, in part because there are fixed prices paid to farmers. And those fixed prices have been increasing, but with a lag. So, we don’t expect a similar increase in production as we see elsewhere.

Production and demand have adjusted already and for this season, we already see a 300,000-tonne surplus. But that doesn’t mean that cocoa will stop being volatile. There has been a lot of short selling on the back of that. And when you expect something to go significantly cheaper, it’s hard to say where the limit is. But going forward, we do expect to see further surpluses. All these investments will become more and more productive in the coming years. And we have to expect lower prices ahead.

And how much do you attribute that surplus to lower appetite on the demand side?

Quite a bit. We’ve seen at least three consecutive years of demand destruction going as high as 5%. That’s actually quite significant. And if you look at the previous decades before this event, demand was growing at an average rate of 2.3%. It didn’t deviate too much from that. You could bet money that that was going to be the average in the future.

One question mark is whether with lower prices, demand will come back. That’s not an easy question to answer. And I think it depends market by market. In markets that got used to a much cheaper option, they might stick with it. In markets like Europe that are very stable, where labelling matters a lot, where you cannot call something chocolate that is not made out of cocoa, that demand might come back in those markets, but slowly.

I think volatility will continue. I mentioned before that cocoa used to be sold forward quite a lot but now that has been reversed. The open interest has collapsed in cocoa futures, and much more than that 14% decline in production. So that tells us that the hedging horizon now is much shorter, which means there’s much more flexibility in a way, but less protection for cocoa buyers. They are hedged for shorter times on average, but also if there’s an event, demand will adapt quicker.

What caused the reversal in Arabica/Robusta premiums, and what were the lasting effects of that event?

In the first half of 2024 that we saw Robusta prices increasing more and more, and we had two disappointing crops in Vietnam, which is the biggest Robusta producer. That created a big deficit in Robusta at the time but that has reversed and now Arabica is back at a premium. That is due to disappointing crops in Brazil Arabica — with Brazil being the largest producer for Arabica.

In Brazil, the situation is that the crop has been disappointing for five consecutive years, but the current harvest that just started very recently in Brazil is supposed to be the first bumper crop after such a long period. And it’s expected to replenish stocks not only in Brazil, but also across the pipeline.

We’re expecting a jump in production of more than 10 million Arabica bags out of Brazil, which is quite significant. And that more or less translates into what we expect in terms of global surplus, which is also about 10 million bags — the lion’s share of that surplus being in Arabica. And it wouldn’t be possible without Brazil producing a bumper crop.

How do you evaluate the risk of a super El Nino this year for agri commodities producers?

The correlation between El Nino and dryness in Australia is one of the strongest correlations that are around. We do expect a drop in wheat yields. However, by far the main concern for farmers in Australia is the fertiliser situation in the short term. While El Nino might be a concern in the future, it is not showing its teeth just yet. We might be still a couple of months away from that official El Nino declaration.

This coffee harvest is very much done in Brazil. So, if it’s dry in Brazil, it’s actually good. But El Nino doesn’t have that much effect on the coffee belt in Brazil. Normally it tends to make southern Brazil wetter than usual, but that’s a little bit farther south than the Brazilian coffee belt. And it tends to make northeastern Brazil drier than usual. That’s normally farther north of the coffee belt. Coffee generally tends to be relatively unaffected by El Nino in Brazil.

What El Nino impacts are the crops in Southeast Asia – so it could make Vietnam drier. Vietnam is largely irrigated, so I wouldn’t expect huge effects on this crop on the trees now. But if it continues to be dry for many months, especially if it’s dry and hot during the dry season (November to April) that could deplete all the reservoirs. And then the next season is going to be compromised.

We’ve seen that before, and that’s a possible scenario. India might suffer, Indonesia might suffer, because all those countries get drier than normal.