Section 1 Introduction | 1 1 Introduction Rabobank sees agri commodity prices down, the levels seen in 2008/09. Elevated price but not out, in 2012. Improved fundamental levels must persist in order to encourage balances and uncertain economic conditions farmers to continue expanding production are expected to keep prices below the 2011 to keep pace with demand growth and highs. However, risks to our price forecasts allowing global inventories to rebuild. are skewed upwards as reliance upon Agri commodity demand should remain nontraditional producers pose an increasing robust in 2012 as consumptive growth in threat, and inventories remain near emerging-market economies continues to historical lows. drive the agri complex. Our analysis suggests We believe the long-term bull run in agri that supply side risks, from both weather commodities remains, but expect prices and politics, have increased again for 2012 across the complex to ease from their record and there remains considerable risk of an highs, continuing their downward trajectory inflection in both price and volatility levels in place since mid-2011. Absent further macro amid adverse production conditions across deterioration, prices are unlikely to plunge to the agri complex.Figure 1.1: Rabobank’s 2012 agri commodity price forecasts Q1’11 Q2’11 Q3’11 Q4’11f Spot* Q1’12f Q2’12f Q3’12f Q4’12fWheat (CBOT) USc/bu 788 748 688 610 579 595 630 615 595Wheat (Matif) EUR/tonne 253 234 199 170 179 162 175 172 166Corn USc/bu 674 732 696 620 585 610 645 630 610Soybeans USc/bu 1,381 1,363 1,358 1,165 1,122 1,178 1,226 1,260 1,251Soy oil USc/lb 57.0 57.3 55.8 49.4 49.3 48.7 50.2 49.1 47.5Soymeal USD/ton 260 240 230 300 282 310 290 330 335Palm oil MYR/tonne 3,681 3,365 3,100 3,000 3,171 2,800 2,900 3,000 3,100Sugar USc/lb 30.6 24.4 28.7 24.5 23.1 23.5 23.0 22.0 22.0Coffee USc/lb 258 271 257 230 232 220 200 180 170Cocoa USD/tonne 3,322 3,042 2,969 2,400 2,246 2,350 2,450 2,350 2,300Cotton USc/lb 182 168 108 95 91 85 85 80 80Source: Rabobank, Bloomberg, 2011
2 | Rabobank Outlook 2012—Down, But Not Out We see lower average prices for all agri 1. Economic slowdown commodities covered in our 2012 forecast. 2. Speculators and the US dollar However, we see upside, from depressed spot prices, for corn, wheat, soybeans, sugar and 3. Policy risks cocoa as fundamentals reassert themselves 4. Capacity constraints and market participants continue to come to grips with the European debt crisis. We see Given the heightened uncertainty in the downside to cotton and palm oil prices in the macro environment, we have decided to short term. In the livestock sector we expect frame our price and fundamental forecasts higher live cattle prices and slightly lower lean in base, low and high-case scenarios to hogs prices in 2012. give guidance over the level of confidence around our economic forecasts and macro Our outlook is centred on four key themes level assumptions. for the agri commodity markets in 2012 which we expect to determine commodity prices. Aside from the inherent weather uncertainties in agriculture, we identify these variables as critical for the agri complex over the next 12 months. Rabobank’s 12-month outlook for prices from current levels Soymeal prices are likely to rebound in 2012 after SOYMEAL underperformance relative to soy oil and soybeans in 2011. Soybean prices are likely to be lower YOY in 2012, but SOYBEANS remain historically elevated, rationing demand, as global production declines. US live cattle prices are expected to fall in Q1 2012 from their LIVE CATTLE November 2011 highs as a record number of cattle on feed outstrips demand in the near term. Although lower than 2011 averages, we expect corn prices to rally CORN from current spot prices into Q2 2012 before easing in Q4 2012 on record production. Abundant supply of cocoa beans and better expectations for the COCOA 2011/12 crop are expected to lead prices lower in 2012. The demand profile for soy oil is relatively recession-resistant, SOY OIL which will likely see prices remain elevated in order to slow demand growth. Neutral price direction is expected over the next 12 months as the WHEAT second largest world wheat crop on record softens the fundamental outlook, but coarse grains provide support. Despite our forecast for record large palm oil production in 2012, we PALM OIL expect the low stock levels of total vegetable oils to limit palm oil’s price downside. Momentum in the US lean hog market is expected to wane in 2012 LEAN HOGS as producers increase farrowing to meet demand and Chinese import growth slows. We forecast lower international sugar prices in 2012 as the market SUGAR shifts into a surplus for the first time in three seasons. We expect the global cotton industry to be under pressure and COTTON prices to fall due to the largest global cotton crop on record. Prices are forecast to fall in 2012 due to the large harvests expected COFFEE in Brazil and Vietnam, but diminished stocks will keep risks high.
Section 1 Introduction | 3A quick look in the rear-view mirror: A review of our forecasts for 2011One of the most common questions we get when talking to clients is “how accurate were your forecasts last year?” This is avery valid question, so before we launch into our 2012 agri markets outlook, we would like to share a quick self-evaluationof our performance in 2011—the good, the bad and the ugly.Our 2011 agri markets outlook report, Agri Bull Market Clouded by Macro Uncertainty, released in December 2010,highlighted seven key themes for the year ahead. 1. Tightening inventory levels 2. Supply limitations 3. Demand growth from emerging markets 4. China commodity short 5. Heightened political risk amid tightening food supplies 6. Fundamentals only part of the story 7. Sustained heightened volatilityThese were the issues we saw as the most important variables likely to influence agri commodity markets in 2011, inaddition to constant supply and demand drivers, such as weather vagaries. Overall, these issues all showed varying degreesof relevance in 2011, and many of them will remain relevant in 2012, assuming the absence of major weather events.As last year’s title suggested, from a fundamental viewpoint we held a bullish outlook for the agri complex; our priceforecasts showed an expectation of higher prices for all but one market in 2011. Our top picks for 2011 were corn, soybeansand coffee, and as it turned out, two out of three ranked at the top of the list in terms of year-on-year price increases, withcoffee the top performer, followed by cotton and corn (see Figure 1.2). Our price forecasts for most commodities weregenerally accurate in terms of direction, with only cocoa moving against our forecast due to the outlier event of theelection crisis in Ivory Coast, which we did highlight as a risk, and which created an unexpected rally for prices. Interestingly,as the situation has normalised and supply chains have restocked, prices have tracked in line with our forecast curve, albeitat an elevated level (see Figure 1.3).The other major event of 2011 was the hottest July the US Midwest has seen in over 50 years, which reshaped the supplyside of the balance sheet for the grains complex. This extreme weather event resulted in both a production forecastdowngrade of over 10% and significantly higher prices. Since April, our price forecasts have reflected a much tighterbalance sheet and have quite accurately indicated Q2 as a turning point with quarter-on-quarter declines forecast for Q3and Q4 (see Figure 1.4). Figure 1.2: Rabobank 2011 forecasts (December 2010) vs. actual, 2011 Rabobank 2011 forecasts (December 2010) Actual Q1’11 Q2’11 Q3’11 Q4’11 Q1’11 Q2’11 Q3’11 Q4’11 Wheat USc/bu 700 680 675 675 788 748 688 610 Corn USc/bu 600 580 550 540 674 732 696 620 Soybeans USc/bu 1,300 1,275 1,200 1,185 1,381 1,363 1,358 1,165 Soy oil USc/lb 53 54 52 52 57 57 56 49 Soymeal USD/ton 355 350 345 340 367 354 353 300 Palm oil MYR/tonne 3,650 3,200 2,900 2,750 3,681 3,365 3,100 3,000 Sugar USc/lb 28 26 24 22 31 24 29 25 Coffee USc/lb 195 195 190 185 258 271 257 230 Cocoa USD/tonne 2,550 2,450 2,350 2,300 3,322 3,042 2,969 2,400 Cotton USc/lb 135 115 90 85 182 168 108 95 Source: Rabobank, Bloomberg, 2011
4 | Rabobank Outlook 2012—Down, But Not Out Figure 1.3: ICE NY Cocoa; Rabobank forecast vs. actual prices, Figure 1.4: CBOT Corn; Rabobank forecast vs. actual prices, 2010-11 2010-11 3,400 800 750 3,200 700 3,000 650 600 USD/tonne USc/bu 2,800 550 500 2,600 450 2,400 400 350 2,200 300 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Actual Dec 2010 forecast Actual Dec 2010 forecast Apr 2011 forecast Source: Rabobank, Bloomberg, 2011 Source: Rabobank, Bloomberg, 2011 Our most accurate price forecasts across the year were for oilseeds (soybeans, soymeal, soy oil and palm oil) and wheat, where negative supply-side issues were less of a factor (see Figure 1.5). Our least accurate forecasts were two of the ‘COs’, cotton and coffee, where despite the direction of the forecast being correct, the magnitude of the price increases was well above our expectations. Figure 1.5: Rabobank quarterly average price forecasts vs. actual price moves in 2011 70 60 50 40 percent 30 20 10 0 -10 -20 Wheat Corn Soybeans Soy oil Soymeal Palm oil Sugar Coffee Cocoa Cotton Rabobank December 2010 forecast Actual Source: Rabobank, Bloomberg, 2011 Our commodity price forecasts are provided as a guide to demonstrate our expectations for price direction throughout the year—regularly updated in our Agri Commodity Markets Research Monthly reports. In view of the level of volatility in the macroeconomy and the general uncertainty in 2011, our forecasts from a year ago have turned out to be reasonably accurate. Our bias for higher prices in the complex proved correct and our top picks—corn, soybeans and coffee— performed better than expected. The seven key themes we identified all played a role in price movements during 2011, most notably supply limitations and heightened political risk due to their impact on corn and cocoa prices. As these risks intensified in Q1 2011, our price forecasts were more accurately revised higher while maintaining a downward bias towards the end of 2011. Although our forecasts for 2H 2011 appeared bearish against market estimates and the futures forward curve, our expectations for more balanced fundamentals and an easing in prices have largely played out, and we expect this to continue into 2012.
Section 2 Key themes for agri markets in 2012 | 52 Key themes for agri markets in 2012 Economic slowdown Biggest losers Slowing global economic growth in 2012 We anticipate an increased supply of many will only have a modest impact on agri agri commodities to result in lower prices in commodity prices as resilient emerging- 2012, but we do not expect a price collapse market demand offsets anaemic growth due to supportive demand and only a modest expectations in the developed world. build-up of inventories. However, as supply is We expect commodities that have a large forecast to be historically tight for many agri speculator long position and those with commodities, we anticipate supply-side a high correlation to global growth, concerns to remain a major supportive factor including livestock and cotton, to be the for most markets, especially coffee and corn. most vulnerable to slowing global growth. On the demand side of the ledger, we expect Commodities with a stable demand base lower international prices to encourage buying and supportive fundamentals, such as corn and stock-building. In our view, demand loss in and coffee, are expected to be the least the developed world will be inconsequential exposed to a contraction in economic growth. even with an economic downturn, as lower prices encourage commercial buying. Rabobank sees continued macro uncertainty Demand growth in emerging markets is with stagnant growth prospects in the EU expected to remain robust and a driver and the US, and resilient but weaker of prices in the agri complex. expansion in the emerging-market economies in 2012 (see Figure 2.1). We view We see the cotton and livestock markets the prospect of a return to recession as a as most vulnerable to economic contraction considerable risk for both the US and the EU, and stagnant growth. Total meat and fish but we expect any contraction to be shallow. consumption in the US peaked in 2004 and As industry and governments are aware of has been declining ever since due to altered the recession risk and are positioned diets and reduced incomes. This trend is being defensively, we expect a downturn to be countered by increased meat and fish small. Our emerging-market growth forecast consumption in emerging markets, which is projects a level of growth similar to what was more than enough to offset the reduction in seen in the first half of the decade, and while US consumption. In our view, the higher the emerging markets are not likely to be able valued livestock markets will be exposed to to decouple from the developed world, we demand loss if there are further reductions to see domestic consumption prospects and household incomes in the US. The high share proactive governments as reasons these of speculators in the livestock futures markets economies will avoid being dragged into a is also viewed as a threat since a risk-off sell- recession by the developed world economies. off could pressure the markets. The speculator net long in the US livestock markets of
6 | Rabobank Outlook 2012—Down, But Not Out 15 November represented 22% of total open US and EU to stumble along interest, up from 9% in early June, and up Rabobank’s macro economists are forecasting from the 2011 average of 18%. Given the economic growth in the US to be slightly fundamentals, there is a compelling reason lower in 2012 as political deadlock and for livestock values to be elevated currently, waning consumer confidence result in but we see the market as particularly economic stagnation. Gross domestic product vulnerable to macro risks. Since cotton is a (GDP) in the US is forecast to grow at 1.5% in consumer product, the cotton market is also 2012, down from 1.7% in 2011 and down highly susceptible to recession, and given the from 3.0% in 2010. In the EU the outlook is forecast fundamentals in the new season, we bleaker; we expect debt concerns and stalling see heightened downside risk. Cotton prices member economies to bring about only slim on the NY market have fallen during the last positive growth. EU GDP is expected to slow seven US recessions going back to 1970 to 0.4% in 2012 from the 1.6% expected in (see Figure 2.2). Cotton prices are forecast 2011 and the 1.8% expected in 2010. Our lower in 2012 due to better supply and modest growth forecast assumes the EU will lacklustre demand, but weakening economies have found a lasting resolution to the debt could extenuate the downside correction. crisis. Elevated risks remain skewed to the downside for both regions as unemployment Differing underlying fundamentals as well remains high, market sentiment is weak and as diverse income elasticities of demand social unrest is rising. will result in varied price reactions among commodities during recessionary events. We We forecast limited demand loss for agri expect the main economies of the world to commodities in both the EU and the US remain out of recession in 2012, but as risks of even in the face of a double-dip recession. a double-dip recession in both the US and the Although real incomes are declining in the EU are high, we have reviewed the potential US and unemployment is high in both response in the agri complex. In general, regions, food remains a small part of recessions do not impact agri commodities discretionary incomes and the consumption uniformly. In fact, supply dynamics are much of most agri commodities is anticipated more important for price movements, and to be stable. High-value products such as this is expected to be the case in the event of livestock or consumer-oriented cotton are a recession in 2012. Recessions have little the most exposed to economic risk and effect on the demand side in the developed could be threatened depending on the world and economic contractions do not scale of a downturn. generally impact supply, which is much more Emerging markets to drive demand dependent on long-term prices and weather. growth The downside risk for commodities is much Rabobank anticipates emerging-market larger if a sizeable slowdown in emerging growth to ease in 2012 but demand growth markets occurs, as this is the source for much in agri commodities to remain strong. We of the expected expansion in consumption. foresee economic growth rates in the Figure 2.1: Rabobank GDP quarterly growth estimates and Figure 2.2: Performance of the S&P GSCI Agriculture Index over forecasts, Q1 2000-Q3 2012 the past seven US recessions, Dec 1969-2009 15 600 10 500 400 percent 5 300 0 200 -5 100 0 -10 Oct-11 Apr-01 Apr-73 Oct-76 Apr-80 Oct-83 Apr-87 Oct-90 Apr-94 Oct-97 Oct-04 Apr-08 Dec-69 00Q1 01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 00Q3 01Q3 02Q3 03Q3 04Q3 05Q3 06Q3 07Q3 08Q3 09Q3 10Q3 11Q3e 12Q3f 12Q1f e=estimate; f=forecast US Euro area China Brazil S&P GSCI Agriculture Index Recession Source: IMF, Rabobank, 2011 Source: Bloomberg, Rabobank, NBER, 2011
Section 2 Key themes for agri markets in 2012 | 7 emerging markets to hover near the bottom is significant as household incomes increase of levels seen just before the financial crisis and demand changes from staple grains to of 2008/09, with emerging-market growth more protein from meat. The higher share forecast at 6.5% for 2012, down modestly of income devoted to food in China is also a from 6.9% in 2011 and 7.8% in 2010, but threat as higher prices can result in significant modestly higher compared with the 2000- demand destruction. The ongoing 2005 average of 6.0%. In our view, the demographic and agricultural conversion emerging-market economies will not be from a rural population and fragmented able to decouple from a slowdown in the production to an urban population and developed world, but increasing domestic intensive food production will continue in demand will play a larger role in growth and 2012. Domestic inflation of food prices is will be supportive for the agri complex. For forecast to ease in 2012 as international agri Brazil, we expect GDP growth in 2012 of 3.6%, commodity prices fall. This is likely to support flat from 3.6% in 2011, and we continue to further increases in demand in China. In our see global demand for agri commodities view, elevated agri commodity prices resulted as a driving force in the Brazilian economy. in Chinese government destocking in 2011. The changing diets and increasing urban The need to restock inventories will be a population in the emerging markets are supportive impact for prices and is expected expected to remain the drivers for the agri to occur despite the modest forecast complex. Demand for oilseeds in emerging downturn in economic growth. markets has grown 110% since 1999 while in Doomsday outcome the developed world the increase has been Rabobank views the likelihood of a recession 12% (see Figure 2.3). Increasing consumption or major contraction of the Chinese economy of agri commodities in emerging markets has in 2012 as very slim. However, a contraction played a major role in tightening balance would have major consequences for both the sheets despite large global harvests in the global economy and the agri commodity past two seasons, and we expect this trend complex. Given the Chinese government’s to continue in 2012. readiness to spend vast reserves to A slowdown in the key Chinese economy in support the economy and to acquire agri 2012 is not expected to impact the growth commodities to alleviate high domestic prices in agri commodity demand as inventories and avert social unrest, we would expect are low for many commodities, inflation the agri complex to remain supported even is elevated and the government has the in the case of slower-than-anticipated means and will to secure supplies on the economic growth. A hard landing for China international market to temper and even would have profound negative impacts on control domestic food prices (see Figure 2.4). the agri complex, but any contraction event Food costs represent a higher share of would likely only have short-term impacts household income in China relative to the on the market. US or the EU. This is an opportunity since the potential to increase agri commodity demandFigure 2.3: Oilseed consumption EU and US vs. BRICs, Figure 2.4: Global GDP and agri commodity demand indexed,1999/00-2011/12f Dec 1986-Dec 2010 160 300 500 150 450 140 250 400 130 350million tonnes Dec 1986 = 100 Dec 1986 = 100 120 200 300 110 250 100 150 200 90 150 80 100 100 70 50 60 50 0 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12f Corn demand Soybeans demand US and EU BRICs Sugar demand Global GDP (RHS)Source: Rabobank, USDA, 2011 Source: USDA, Rabobank, IMF, 2011
8 | Rabobank Outlook 2012—Down, But Not Out Economic outlook Recession or slowing economic growth will be a threat to the agri commodity markets in 2012, but in our view the expected resilient demand growth from many agri commodity markets in emerging economies will help mitigate the impacts from any economic downturns. We anticipate lower-than-average stock levels of many agri commodities to support prices; while harvests are expected to be large, encouraged by the high prices, the supply response is still catching up to demand. In our view, a recession, if it does occur, would be expected to be shallow and not to impact agri commodity demand. However, cotton is viewed as more susceptible to a downturn, and livestock consumption can also be impacted by recession, but we see emerging-market demand expansion as more than sufficient to make up for demand losses in the developed world. We anticipate lower prices in 2012 as a function of better supply; this will support demand despite the heightened global macro uncertainty.
Section 2 Key themes for agri markets in 2012 | 9Speculators and the US dollar likely against most other commodities inWeak fundamentals for the US dollar should 2012. Loose monetary policy conditions inproduce a period of further devaluation the US following two rounds of quantitativeversus most other currencies throughout easing in 2008 and 2010, ongoing record2012, providing upside support for most low interest rates, high unemployment andagri markets. But as we have seen in 2011, anaemic growth expectations for the USfundamentals do not always matter. economy are expected to see most otherRabobank’s base-case macro and foreign currencies outperform the US dollar overexchange forecasts suggest that a weaker the next 12 months. However, we do expectUS dollar environment will reappear again to see some recovery of the US dollar againstin 2012. While global financial market and major commodity currencies in 2012, whichmacroeconomic uncertainty remain a we believe are overvalued.significant risk to our forecasts, particularly These weaker fundamentals for the US dollarif the trend of widespread risk aversion look set to reassert themselves in 2012, andcontinues from 2011 into 2012, a generally while the US Federal Open Market Committeeweaker US dollar should be a supportive (FOMC) has not indicated they will implementfactor for the agri complex in the year ahead. another round of quantitative easing stimulusUnsurprisingly, we do not expect the (QE3) at this stage; they have not ruled itweakness of the US dollar to be uniform out either, and we expect this to remain inin magnitude or even direction, with the play throughout 2012. Even without QE3,potential for short-term upside against US Federal Reserve policy measures lookthe euro afflicted by political paralysis and set to remain loose, with US Federal Reservedisunity in the member bloc. However, against Chairman Bernanke explicitly stating thatother currencies we see further downside for the federal funds rate was set to remain atthe US dollar from current levels, improving an “exceptionally low level at least throughboth the purchasing power of emerging- mid-2013” given conditional economic ,market importers and the competitiveness conditions. Our forecasts do not see a caseof US agricultural exporters against many for strong enough growth in 2012 to moveof their key competitors (see Figure 2.5). We FOMC policy from current levels. A risk towould expect most prices within the agri this view is the possibility that the Europeancomplex to appreciate in a weaker US dollar Central Bank could become the lender ofenvironment. We highlight corn, wheat, last resort which would have a longer termsoybeans and lean hogs as the biggest drag on the euro, balancing the poor USwinners in the complex as the US export dollar fundamentals.market improves on a weaker dollar. Recovery from the current challenges appearsOnce the dust settles on the EU debt crisis, likely to be protracted and hence we seewe expect focus to return to weaker loose monetary policy and a weak US dollarfundamentals for the US dollar, with downside as capable of buttressing the US economy. Figure 2.5: Rabobank FX forecasts, 2012 Q1’12 Q2’12 Q3’12 Q4’12 EUR/USD 1.33 1.39 1.45 1.48 USD/JPY 78.00 79.00 82.00 83.00 GBP/USD 1.56 1.62 1.69 1.74 USD/CHF 0.93 0.90 0.90 0.91 AUD/USD 1.00 0.98 0.97 0.95 NZD/USD 0.76 0.75 0.74 0.73 USD/CAD 1.00 0.99 0.98 0.98 Source: Rabobank, 2011
10 | Rabobank Outlook 2012—Down, But Not Out ‘Flight to safety’ has become a common complex and key macro indicators jumping catch cry in 2011 and, given the ongoing sharply to reflect the focus of the EU debt macroeconomic uncertainty, risk aversion crisis (see Figure 2.7). As this continues to may well continue to be a key theme in 2012. play out, we expect uncertainty to remain This macro uncertainty—primarily the result elevated, resulting in a continuation of high of the EU debt crisis, but also influenced by correlation between most asset classes bipartisan politics in the US and mounting continuing into 1H 2012. worries of a Chinese economic slowdown— Speculators abandon ags has created a risk-on/risk-off trading Speculative money flows will largely be environment in all markets over the past determined by the macro environment in 12 months. Risk-off has meant a withdrawal 2012, with a clear resolution in the euro area of funds from emerging market assets and needed to restore confidence levels amongst currencies, as they are perceived to be higher investors. Over the past 12 months, we have in risk than the US dollar, despite growth seen diverging dynamics: the first half of the prospects in these markets remaining much year saw surging agri markets attracting stronger than in most developed economies. additional investor inflows as an inflationary For agricultural prices, this has compounded hedge amid rising world food prices, while a price volatility as speculators have not only flight to safety resulted in significant net shifted into and out of the underlying agri outflows of investor capital from agri markets markets, but also between the commodity in the second half of the year. Looking ahead, currencies and the US dollar (see Figure 2.6). a sudden and complete return of investor Looking ahead to 2012, the challenge money into the agri complex appears becomes one of macro uncertainty and diminished as the macro uncertainty is likely whether we continue to see periods of to remain for some time to come. We also extreme risk aversion continuing in 2012. expect there will be less of a constructive Correlation spike fundamental story in agri markets in 2012 as The extreme macro uncertainty has resulted fundamentals appear more in balance than in in all asset classes becoming even more recent seasons. intertwined over the past 12 months. Broader Winners and losers themes such as liquidity, political risk, financial Based on Rabobank’s forecast of a weaker US stability, austerity measures and social unrest dollar against most developed and emerging- have all resulted in agri markets, currencies, market currencies over the next 12 months, equities and other asset classes becoming commodities produced and exported from highly correlated for most of 2H 2011. Recent the US are the most likely to benefit. Further developments have escalated fears of devaluation of the US dollar in 2012 will add contagion. Globally, there are considerable support to what we expect to be resilient concerns as to whether individual commodity emerging-market demand for agricultural or asset class fundamentals have become commodities (see Figure 2.8). Recent years mostly irrelevant as focus has shifted from risk have seen considerable decoupling of appetite to risk aversion. In September 2011, emerging-market currencies from the US we saw the correlations between the agri Figure 2.6: Managed money net long positions in agri Figure 2.7: Correlation between the agri complex and key macro commodities vs. S&P GSCI Agriculture Index, Jan 2007-Nov 2011 indicators, Jan 2007-Sep 2011 600 1,400 0.7 daily price correlation to MSCI World Index 550 1,200 0.6 S&P GSCI Agriculture Index 500 1,000 0.5 thousand contracts 450 800 0.4 400 600 0.3 350 400 0.2 300 200 0.1 250 0 0 Jan-11 May-11 Sep-11 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 2007 2008 2009 2010 2011 Sep-2011 S&P GSCI Agriculture Index CBOT Corn NY ICE Sugar S&P GSCI Agriculture Index Managed money net long (RHS) CBOT Wheat Average (Rabobank coverage) Source: CFTC, Bloomberg, 2011 Source: Rabobank, Bloomberg, 2011