Soybean was described as the “star commodity” of the 2018/2019 marketing year, closing the season at a price appreciation of 20.44 percent from the opening price of N120,000. This disclosure, which was contained in the 2019 Annual Commodity Review by AFEX Commodities Exchange Limited, further stated that the key driver of the (soybean) commodity was the increasing demand for it from industrial off-takers in the animal feed and baby food business.
The commodity reflected the typical high risk/ high return profile with seasonal volatility of 50.69 percent in the 2018/19 marketing year. As experienced in the maize production areas, AFEX stated that soybean production was favourable as conducive weather condition stimulated an expectation of higher production in the country. On the demand side, however, activities have been heightened as more players participate in the domestic sourcing of the commodity. Prices in the 2019/20 season are expected to spike with conservative estimates as high as 25-30 percent as the season progresses.
In the Nigerian market, maize and soybeans remain the most liquid commodities owing to the diverse use of the commodities across industries in the country. Despite the historical importance of cocoa, trades have declined significantly with the international market spurring the greater proportion of trades. In addition to the three commodities mentioned, sorghum, paddy rice, sesame and ginger have become economically important as the increased demand by industrial users; locally (Sorghum and Paddy rice) and internationally (Sesame and Ginger) prompt the attention of stakeholders along the value chain. This is according to AFEX, which the Securities and Exchange Commission describes as Nigeria’s only fully functional commodity exchange platform.
Price outlook for some major commodities
The AFEX report apart from giving an overview of market trends for the past year, also gives insights into expectations for the current season. As clarified in a phone interview with Yusuf Ogunbiyi, head of research at AFEX, the commodity year starts on December 1. As such, the projections below apply to the commodity year starting December 1, 2019 to November 30, 2020.
Soybean – 25 to 30 percent increase in prices
The demand for soybeans is projected to remain strong as more players flock into the demand creating industries. The demand dynamics in this season is expected to be more complicated as the closure of land borders with neighbouring countries increase the demand for poultry products which in turn place some pressure on the soybean market.
AFEX anticipates a conservative growth of 5 – 6 percent in soybeans consumption in Nigeria. The interplay between the demand and supply forces are already visible in the market as farm gate prices are set to support levels at NGN115,000, NGN100,000 and NGN110,000 respectively in Benue, Taraba and Kaduna states. This provides a glimpse of the price appreciation expected in the soybean market this year. AFEX holds the opinion that prices will rise by as much as 25 – 30 percent following the factors described above.
Maize – 19 percent increase in prices
According to the report, there has already been an increase in prices of maize with price settling at N90,030 at the beginning of the last season. This indicates a higher price level as against the same period of 2018. It is anticipated that the aggressive push by industrial users to procure as much maize as possible will push up prices of the commodity, spiking by 19 percent at the peak of trading this year.
Rice – 15 percent increase in prices
The closure of the borders has set the pace for a rather volatile price environment in the paddy rice markets with intra-month gains in October 2019 climbing up by 9.80 percent. This price behaviour has shifted the support for paddy rice prices from NGN125, 000/MT as witnessed at the end of the past marketing year (2017/2018) to NGN140, 000/MT in 2018/2019.
By implication, supply-side agents (farmers, traders and merchants) are faced with a more profitable year in 2020. Outlook for paddy rice prices in 2019/2020 marketing year is that of a 15 percent rise in prices as the impact of demand spike is expected to be mitigated, albeit marginally, owing to improved weather conditions in core producing areas across the country.
Cocoa – 40 percent increase in prices
Activities in the cocoa markets have reached multi-year highs with local buying agents, exporters, aggregation companies and local industrial users flocking the core producing areas for supplies. The market condition is further compounded by the less than stellar output witnessed at the end of the production season. Prices have appreciated by more than 10 percent so far with market participants anticipating further price increases in the coming weeks. Preliminary evaluation of the demand-supply situation in the market indicates a spike in the number of demand agents – cocoa supply ratio.
Also, the number of open contracts as measured by failed or declined sales have increased as more farmers hoard the commodity in anticipation of further price increases. In addition to domestic market sentiments, increased grinding activities in Sub Saharan Africa and Asia as well the likelihood of price floor establishment by Ivory Coast and Ghana have stimulated the demand for cocoa beans. It is estimated that prices will increase by up to 40 percent from N650,000 witnessed at the beginning of the current season.
Ginger – 25 percent increase in prices
Given the export potential of ginger and the influx of agents sourcing on behalf of international buyers, the ginger market has gained significant impetus closing the last season (2018/2019) at about 75.33 percent high. Prices started the 2019/2020 marketing year at N430,000 – N450,000 per metric tonne for cleaned ginger, representing about 80-87 percent higher than prices at the beginning of the 2018/2019 marketing year. From all indications, prices will appreciate significantly in the 2019/2020 marketing year with the possibility of hitting N600,000 very rapidly. The increased demand elements from international buyers will dominate the outcome of the markets.
Sorghum – 4 to 5 percent increase in prices
Following the demand-supply expectation for sorghum in the current season, it is anticipated that sorghum prices in the 2019/20 marketing year will be largely subdued with a meagre gain of 4-5 percent. This is due to the favourable weather condition, which is expected to boost production and the lacklustre demand pattern building up so far. It is predicted that will limit the appreciation possible for the commodity.