Softs drive agriculture sector outperformance Softs drive agriculture sector outperformance Softs drive agriculture sector outperformance

Softs drive agriculture sector outperformance

Ole Hansen

Head of Commodity Strategy

Summary:  Commodities faced multiple challenges this past month as the China recovery focus was replaced by worries an increasingly hawkish US Federal Reserve would continue to hike rates thereby risking a growth and demand damaging hard landing. While industrial and precious metals as well the energy sector ran into selling, the agriculture sector trades close to unchanged on the year with strong gains across the soft sector, led by coffee, sugar and orange juice offsetting weakness in grains and livestock.

Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team

While the energy sector as well as precious and industrial metals have seen the January rally deflate to leave those sectors in the red on the year, the agriculture sector remains resilient with the BCOM agriculture index trading close to unchanged on the year.

Following a strong run up in prices during January, as speculators and traders loaded up on a China recovery theme, these non-agriculture sectors have since been on the backfoot as the focus moved from a slow pickup in demand from China to a loss of risk appetite, driven by macroeconomic developments in the US where recent economic data have shown continued strength in the labor market while inflationary pressures have eased by less than expected. 

Continued strength in these numbers have forced the Fed to turn up the hawkish rhetoric, and the market has responded by raising the expected terminal Fed funds rate while at the same time sending bond yields and the dollar higher, thereby hurting risk sentiment across stock markets and the mentioned commodity sectors.

Taking a closer look at the different sub sectors within the Bloomberg Agriculture Index, we find most of the gains being concentrated in the soft sector, led by orange juice and Robusta coffee – both non-BCCOM members as well as sugar and Arabia coffee. All supported by tightening market conditions related to developments across their individual growing regions from Florida and Brazil to India and Vietnam. At the other end of the performance table, we find losses across key crops led by wheat, which in turn has spilled over to lower corn prices as well. 

Following last year’s surge to a record high that followed Russia’s attack on Ukraine, a major supplier of grains to the global market, a decent northern hemisphere production, not least in Russia, combined with the UN-sponsored grain export corridor from Ukraine have all helped drive prices sharply lower. After hitting record highs last March, the front month wheat futures contracts in Chicago and Paris have lost close to 50% and 40% respectively and currently trade at 17 and 12-month lows.

Russia, the world’s biggest exported is expected to ship a record amount during the second half of the season, while Ukraine is looking for an extension of the soon to expire Black Sea grain-export deal. Combined with a stronger dollar, prices in Paris and Chicago are being forced lower in order to remain competitive with Russian wheat. 

Looking ahead to the coming crop year, it is worth noting that the “triple dip” La Niña, which in recent years caused volatile weather developments in key growing regions, appears to be in the final stages, with a transition to neutral ENSO (El Niño Southern Oscillation) levels likely underway. Global climate models, however, call for a shift to El Niño in the Northern Hemisphere summer, potentially reducing extreme heat risks for US crop, but raising the risks of a weaker Monsoon through 2023 for much of Asia and Australia. A phenomenon that typically also improves the chances of rainfall across Southern Brazil through the summer.

Overall, the geopolitical fallout on agriculture markets from the Russia’s war in Ukraine will continue to leave the market vulnerable to further disruptions. Ukraine’s corn and wheat production is set to fall for a second year in 2023 and according to Ukraine Grain Association (UGA) the corn output is not expected to exceed 18 million tons and wheat production 16 million tons as farmers reduce production and arable land being inaccessible due to fighting. Overall, Ukraine's grain and oilseed crop output may decline to around 50 million tons from some 67 million in 2022 and about 106 million in 2021, according to UGA estimates.

Together with fundamental support from a recovering China, inflation driving high production costs, weather disruptions potentially impacting production in Asia and Australia, together with tightening fundamentals for sugar, cotton and coffee we see the agriculture sector staying relatively immune to the macroeconomic headwinds currently impacting energy and metals. 


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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