EM FX Weekly EM FX Weekly EM FX Weekly

Agriculture: Growing divide between softs and grains

Ole Hansen

Head of Commodity Strategy

Summary:  The extraordinary temperatures seen this year, partly due to El Niño as it continues to develop in the equatorial Pacific, has created a very volatile year across the agriculture sector. Some areas have been hurt by high temperatures and drought while others have been impacted by too much rain, but overall a clear trend has emerged with the southern hemisphere suffering a bigger disruption than the northern, and it helps explain a widening gap this year between the performance of soft commodities - such as cocoa, coffee, cotton, and sugar on one hand, and the grain and soy sector on the other.

Global Market Quick Take: Europe
Commitment of Traders: Near record gold buying drives risk of a correction
Commodities: Special edition podcast with WisdomTree

Key points in this update:

  • A volatile weather year has created a sharp performance gap between grains and softs
  • El Niño is growing in strength raising concerns for the Southern Hemisphere crop season
  • Gains in softs being led by orange juice, cocoa and sugar 


“October temperature record broken as 2023 ‘near certain’ to be warmest year” was the headline in this recent article which sited data from the EU’s climate monitor. The extraordinary temperatures seen this year have partly been due to El Niño as it continues to develop in the equatorial Pacific. A weather phenomenon, explained by NOAA here, which tends to bring rain to South America and droughts to Australia and parts of Asia, and the result has been a widening gap this year between the performance of soft commodities - such as cocoa, coffee, cotton, and sugar on one hand, and the grain and soy sector on the other. 

Source: NOAA

The softs sector is so far showing a 32% year-to-date gain, while the grains sector has fallen by 14%. Despite weather scares early in the growing season and concerns about Ukraine, a bumper crop has emerged following a strong growing season across the northern hemisphere. Lower wheat, corn and soybean prices have done a great deal to reduce inflationary pressures around the world, but dark clouds may still emerge into the southern hemisphere production season with hot temperatures in Australia and too much rain in parts of South America highlighting the different impact of El Niño which may grow in strength in the coming months. 

The softs sector has experienced a much more challenging year so far with many of the products being produced across regions from West Africa to India and Thailand which have been exposed to extreme temperatures and with that loss of water and production. Examples being cocoa which trades near a 44-year high with this season’s Ivory Coast port arrivals remaining well below last season’s pace while sugar has reached a 12-year high, driven by port congestions in Brazil at time where India’s crop has been hurt by dryness, leading to export restrictions from the world’s second largest shipper. Furthermore, lack of rain in October due to continued impacts of El Niño could signal the country’s production problems will extend for a second season, limiting supplies through 2025.

The sharp divide between grains and soy contracts and the softs are on clear display in the below performance table, and while the overall impact on the global economy and consumers remain relatively low given price movements so far in key stables such as rice and wheat, the risk to production from rising temperatures across the world, leading to water shortages and more volatile growing conditions can unfortunately not be ruled out. 

Frozen orange juice futures top the table below after reaching a record high last month above $4 per pound, more than 3X the average price seen before 2022 when orange groves were damaged by Hurricane Ian. In addition, more consistent damage has been caused by the citrus greening disease, resulting in the USDA forecasting a production of 20.5 million boxes in the 2023/24 marketing year, down from 41.2 million boxes produced in 2021/22. 

Agriculture-related companies in the S&P Commodity Producers Agribusiness Index which is tracked by the iShares Agribusiness UCITS ETF trades down around 15% on the year, and by coincidence in line with the loss seen in the above-mentioned grains index. While an investment in food commodities risks amplifying the risk of even higher prices, an investment in companies involved with the sector can instead be part of the solution, as the industry tries to optimise production methods in order to address the growing threat of climate change.

Source: Saxo

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.