Thank tiny bugs, China's hungry pigs for agriculture winners

Investors who defied surpluses and low prices to make winning bets on agriculture in 2016 have tiny bugs and hungry Chinese pigs to thank for their windfalls.

Orange juice, which soared 34 per cent, was the biggest winner for crop and livestock markets. Futures zoomed as a citrus disease shrunk fruit production. The soybean complex, which includes the vegetable oil and animal feed made from the beans, rallied as US exports to China surged. In contrast, there was pain for those who bet on cocoa or wheat, where supply remains plentiful.

It was a lackluster year for the asset class as a whole — the Bloomberg Agriculture Subindex of nine components was up less than two per cent in 2016. Still, that was the first annual advance since 2012. Goldman Sachs Group Inc is among those predicting more gains for 2017. The bank in November recommended an overweight commodities position for the first time in four years and predicted a 12-month return of more than 4 per cent for agriculture as rising demand erodes cheap supplies.

“We are at very low levels for many of these commodities, and based on valuations, I see very little downside,” said Ben Ross, co-portfolio manager, commodity strategy, at New York-based Cohen & Steers Capital Management, which oversees about $56.5 billion. “We could expect to see some deficits for the year, but markets will still have high inventories to contend with.”

Here’s a closer look at some of the agriculture winners and losers:

Orange Juice

Prices on ICE Futures US in New York reached an all-time high of $2.275 a pound in November. The Asian citrus psyllid, the disease-spreading bug, sent fruit production in Florida down for fifth straight season, the longest slide in a century. Output in Brazil, the world’s top producer and exporter, fell to the lowest in 22 years. Despite the price gains, it’s not boom times for all growers. The psyllid plague has gotten so bad that some of Florida’s farmers are giving up on the crop, and acreage has dropped to the lowest in 50 years. In Brazil, farmers on average sold their fruit at 36 percent below market prices because they were locked in to contracts made earlier, said Gilberto Tozatti of Araras, Sao Paulo-based GCONCI-Group Citrus Consulting.

Sugar, Soybeans

Sugar’s had a roller-coaster year, first surging as much as 58 pe rcent to a peak in September before tumbling into a bear market in December. Drought in Asia had meant that production was lagging behind demand, but better weather returned and crop prospects also improved in Brazil. While prices still posted an annual gain of 28 percent, hedge funds have drastically cut back their bets on further gains as many analysts predict the market will move to a supply surplus.

For the soy complex, supply disruptions in South America altered global buying patterns. Flooding in Argentina and drought in Brazil in early 2016 sent prices soaring as demand shifted to U.S. supplies. China is the world’s biggest consumer and uses the oilseed and its products to feed growing hog and dairy herds and chicken flocks. In the season that started Sept. 1, importers have already committed to buying 28 percent more soybeans from the U.S. than at this time last year, government data show. Still, Rabobank International, the second-biggest U.S. agricultural lender, says farmers should be locking in 2017 profits before beneficial rain in South America boosts harvests and washes away potential income.

Soybeans for March delivery slipped 0.4 per cent to $10.005 a bushel as of 6:12 a.m. in Chicago on Tuesday.

There’s so much wheat in the world that at the end of the current crop season, there will be enough left over in global grain bins to feed both the European Union and China, the two biggest consumers, for another year, data from the US Department of Agriculture show. That highlights why the market — plagued by burdensome supply — was among the gloomiest commodities in 2016