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LONDON. – Currency fluctuations will affect agricultural markets in 2016 more than ever, with the US dollar expected to firm and Latin American and European currencies facing weakness, according to a leading agricultural lender. “Through 2016, foreign exchange rates will have a bigger influence on agri-commodity markets than ever before,” said Rabobank, the Dutch bank, which is a leading financier to farmers and agribusinesses around the world.

The US dollar is expected to strengthen in 2016 with many emerging markets likely to ease monetary policy. With a larger proportion of agricultural commodities now produced outside the US, the link between low market prices and production cuts has been broken as weaker local currencies provide an incentive to further expand output for countries such as Brazil, Russia and Ukraine, said the bank in its annual outlook.

On the outlook for individual agricultural commodities, the bank said sugar faced “the most bullish fundamentals of all agri-commodities through 2016”. The sweetener, which is forecast to average 14,5 cents a pound in the fourth quarter of this year, is expected to rise to 15,5 cents in the fourth quarter of 2016.

The bank is also bullish on cotton, which is coming off a low base of 63 cents a pound in the current quarter, and expects the commodity to rise to 68 cents as inventories are steadily drawn down.

Cocoa, which has risen about 17 percent year-to-date and is trading at about £2 270 a tonne, is expected to weaken as increases in the prices paid to farmers incentivises production and increases supply.

Wheat is likely to see volatility as competitive Black Sea offers will continue to displace the trade flows of traditional exporters, said the bank.

On the currency impact on trade, Rabobank expects Brazil to be the leading beneficiary. “Clearly, the Brazilian agricultural sector will be one of the biggest winners,” it said, with the weak real increasing the competitiveness of the country’s soyabeans, corn, coffee and sugar exports.

Elsewhere, weakness in the Ukrainian Hryvnia and Russian Ruble will make Ukrainian and Russian grain exports even more competitive. For US farmers, it will mean their products’ will continue to be uncompetitive compared with rival growers in Latin America and eastern Europe. Sustained grain and oilseed price weakness will continue to encourage on-farm storage in the US.

“The strong US dollar will continue to limit the US market share of global agricultural exports, while internal stocks increase,” said the bank. Meanwhile, the potential for further devaluations of the renminbi could affect import demand from China, one of the leading buyers of agricultural commodities.

The country also has large inventories of several agricultural commodities, including grains and cotton. In some markets like sugar, China’s consumption is expected to decline more than 3 percent year on year, as cheaper alternatives such as high-fructose corn syrup are increasingly used as substitutes, Rabobank said. – FT.