Soft agricultural goods will find support as market participants brace for potential disruptions in trade flow, BMI Research said, as sugar and coffee continue to lead the gains.
On the one hand, persistent production challenges are exerting upward pressure on global coffee and sugar prices (SB1:COM), as adverse weather conditions in Brazil continue to drive coffee prices higher, while similar production issues in major sugar-producing countries, such as Brazil and India, are bolstering sugar prices, the brokerage said.
“On the other hand, while escalating trade tensions introduce a downside risk to grain prices—primarily due to the threat of retaliatory tariffs impacting U.S. exports—the same tensions have bolstered prices for soft agricultural commodities, such as coffee and sugar.”
BMI attributes this to the United States’ substantial dependency on import volumes for these commodities, where increased uncertainty regarding potential further tariff announcements has reinforced price support.
Coffee Futures (KC1:COM) are up 37% so far this year, and 124% over the past one-year amid supply and tariff concerns.
Sugar futures (SB1:COM) are meanwhile up 4.3% for the week and have gained 4.5% YTD.
Fitch’s BMI further argued that while the escalating trade tensions are expected to negatively impact grain prices—primarily due to the risk of retaliatory tariffs affecting U.S. soybean exports to Canada and China—the scenario differs for soft agricultural commodities like coffee and sugar, for which the U.S. maintains a trade deficit in these products.
Given this context, it believes that persistent threats of tariffs by President Trump will bolster and support prices for these commodities.
“Even though the tariffs against Colombian imports were withdrawn, current market prices still reflect the heightened risk of tariffs being imposed on markets where the US relies heavily on import volumes. This perception of risk, combined with ongoing trade tensions, leads us to expect that prices for soft agricultural goods will continue to find support as market participants brace for potential disruptions in trade flows.”
CBOT corn (C_1:COM) +0.62% to $496.58 per bushel, soybeans (S_1:COM) +0.87% to $1,038.99 per bushel, and wheat (W_1:COM) +1.74% to $587.81 by 6:04 am ET.
ETFs: (CORN), (SOYB), (WEAT), (DBA), (NYSEARCA:MOO)
