Risks and Challenges in Global Agricultural Markets

Economic

Summary:

The agricultural sector faces numerous challenges, including extreme weather events, fluctuating input costs, trade restrictions, and the ongoing impacts of climate change and evolving biofuel policies.

The World Bank’s agricultural prices index gained momentum in the second half of 2024, propelled by record-breaking price increases in beverages. However, this surge was partially offset by declining food prices. Looking ahead, agricultural prices are projected to decrease by 4 percent in 2025 before stabilizing in 2026. This outlook, however, is subject to significant risks, including extreme weather events, input cost fluctuations, trade restrictions, and long-term challenges such as climate change and evolving biofuel mandates.

Heat waves affect crop yields. The current year will likely set a record as the warmest year in recorded history, with global average temperatures surpassing pre-industrial levels by over 1.5 degrees Celsius, according to the European Space Agency. Heat waves have had widespread effects on crop yields, with notable impacts on maize, rice, soybeans, and wheat in China; rapeseed and sunflower seed in the European Union and the Black Sea region; sugarcane in Brazil; and palm oil in Indonesia. As heat waves grow in frequency, intensity, and duration, they are likely to exert upward pressure on agricultural prices, posing major challenges for global food security.

Risks and Challenges in Global Agricultural Markets_1

Declining input costs offer temporary relief. Energy and fertilizer prices are projected to decline by 6 percent and 2 percent, respectively, in 2025. These reductions reflect easing oil and coal prices, alleviating some of the cost pressures that agricultural producers faced during the 2022 and 2023 crop seasons. Notably, the fertilizer affordability index (which measures the ratio of fertilizer prices to agricultural prices) has returned to pre-pandemic levels. However, risks remain: Escalating conflicts in the Middle East or reductions in Russian natural gas exports could reverse this trend and drive up oil and natural gas prices. Such developments would likely increase fertilizer costs, potentially pushing food commodity prices higher again.

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Trade restrictions and global supply disruptions. Trade measures, including tariffs and export bans, have increasingly disrupted global agricultural markets in recent years. For example, in 2018, U.S. soybean exports to China dropped by almost three quarters (from 31.7 to 8.2 million tons), reducing China’s share of U.S. soybean exports from 57 percent to 18 percent. Additionally, with half of the world’s population living in countries that held elections in 2024, policy shifts by new governments could further impact trade flows. Moreover, rising protectionism or renewed trade tensions may affect grain prices, global inventories, and trade partnerships.

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Climate change is a growing threat to tropical commodities. Beyond heat waves, climate change continues to drive extreme weather patterns such as floods, hurricanes, and wildfires, which disproportionately affect tropical commodities like coffee and cocoa. These crops face unique vulnerabilities:

Long investment cycles: Tree crops take years to yield output, limiting flexibility.

Geographic concentration: These crops are often grown in specific regions, making them more susceptible to localized climate disruptions.

Limited substitutability: Unlike annual crops, tree crops cannot easily switch varieties or alternatives year-to-year.

The World Bank’s Beverage Price Index—which includes coffee, cocoa, and tea—surged 70 percent in November 2024, year-over-year, while the Food Price Index fell 6 percent during the same period. Tropical commodities remain particularly exposed to climate risks, underscoring the need for effective resilience policies and investment strategies.

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Rising biofuel mandates. Biofuel production is expected to stabilize in 2025, supported by declining energy prices and moderate economic growth. However, evolving biofuel policies are driving higher demand for feedstocks, such as soybean oil, palm oil, sugar, and maize. Numerous countries are raising or planning to raise their biofuel mandates. For example:

Argentina and Brazil are planning to increase their biodiesel blending mandates.The European Union has imposed anti-dumping tariffs on Chinese biodiesel to boost domestic production.Indonesia plans to raise its biodiesel blend from 35 percent to 40 percent by early 2025.

With demand growth driven by emerging markets favoring higher admixtures, biofuel demand could exceed expectations, potentially raising prices for feedstocks like grains, vegetable oils, and sugar.

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Agricultural prices are levelling off, but uncertainties remain. While the World Bank’s agricultural prices index has experienced significant fluctuations in 2024, the future remains uncertain with a projected decrease in prices in 2025 and stabilization in 2026. The agricultural sector faces numerous challenges, including extreme weather events, fluctuating input costs, trade restrictions, and the ongoing impacts of climate change and evolving biofuel policies. As we navigate these complex dynamics, it is crucial for policymakers, industry leaders, and other global players to focus on strategies that can enhance resilience and ensure a more stable and sustainable agricultural market.

Sources:WorldBank

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Warren Takunda

Cryptocurrency

Bitcoin reached a crucial breakout level on Jan. 30 as BTC price action left altcoins in the dust. Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_1

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_1

BTC/USD 1-hour chart. Source: Cointelegraph/TradingView

BTC price action shrugs off hawkish FOMC, DeepSeek

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hitting $105,563 on Bitstamp, a six-day high.

Erasing the entire DeepSeek dip, Bitcoin made market participants once again hopeful of new all-time highs.

“Bitcoin structure looks flawless. It really does, from LTFs to HTFs, it really looks like it wants higher,” trader Castillo Trading wrote in a post on X.

Castillo Trading noted diverging behavior between BTC and altcoins, with the latter failing to follow its lead.

Data from CoinMarketCap confirmed that over the past seven days, Bitcoin was the only net gainer in the 15 largest cryptocurrencies by market cap, up 2.3%.

“$BTC held up well with all the turmoil, while the rest of the market had weakness,” fellow trader Pentoshi agreed.

“Don't see any reason we don't get new highs soon on this at the very least. Also above the middle of the current range and acting as support.” Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_2

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_2

BTC/USDT 4-hour chart. Source: Pentoshi/X

Crypto trader, analyst and entrepreneur Michaël van de Poppe predicted that BTC price discovery could return “in the coming weeks,” offering February as a potential target. Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_3

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_3

BTC/USD 1-day chart. Source: Michaël van de Poppe/X

BTC price bullish divergences “playing out nicely”

Bitcoin’s reaction to new macroeconomic uncertainty came as something of a surprise.

At the latest meeting of the Federal Open Market Committee, or FOMC, the US Federal Reserve chose not to cut interest rates, signaling an ongoing hawkish stance in an anticipated blow to crypto and risk assets.

After an initial drop, however, BTC/USD staged a quick rebound and held higher, even as markets priced in tighter financial conditions through the end of 2025. Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_4

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_4

Fed target rate probability data (screenshot). Source: CME Group FedWatch Tool

“Last weeks lows raided & market bid liquidity taken,” trader Skew said about BTC price action around the event.

“Confirmation of market strength would be price recovery back above $105K with momentum.” Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_5

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_5

BTC/USDT 4-hour chart. Source: Skew/X

The move higher ate through sell-side liquidity just below $104,000, with data from monitoring resource CoinGlass showing new liquidation zones appeared closer to $107,000. Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_6

Forget FOMC — Bitcoin Price Now Has 'Plenty of Room' to Reach $108K_6

BTC liquidation heatmap (screenshot). Source: CoinGlass

“Really like what I’m seeing here as I’ve been bullish this entire range,” trader Roman continued, referring to popular leading BTC price metrics.

“Stoch & RSI have plenty of room to break 108 resistance and head higher. We also have bull divs playing out nicely.”

Source: Cointelegraph

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Warren Takunda

Economic

The Federal Reserve decided to keep interest rates unchanged in the 4.25%-4.50% range during its January meeting, in line with market expectations.

Following three consecutive rate cuts totalling one percentage point, the US central bank’s policymakers opted to hit the brake at the first policy meeting since the Trump administration took office.

The US economy remains resilient, with a strong labour market. However, inflation is still deemed ‘somewhat elevated’, prompting the Fed’s committee to reiterate the cautious approach outlined in December:

"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

Essentially, the timing and scale of any further rate cuts will depend on economic data and emerging risks – a notion that had sparked concerns among market participants last month.

The Fed continues to exercise caution, choosing to assess economic developments before implementing further monetary easing—a luxury not available for the European Central Bank, which faces mounting pressure to cut rates more aggressively.

Fed-ECB policy divergence grows

In December, the Fed surprised markets by raising its inflation forecast for 2025 to 2.5% and cutting its projection for interest rate reductions to just two for the year, down from four in its September outlook.

Fed Chair Jerome Powell underscored that rates are close to neutral levels and that any further cuts must be approached with great care.

While the US economy’s strength and persistent inflation are keeping Fed policymakers on edge, the situation in Europe is markedly different: economic outlook is deteriorating, and inflation is making steady progress towards the 2% target.

On Wednesday, the German government slashed its 2025 economic growth forecast to just 0.3%, down from the previous estimate of 1.1% in October.

Economy Minister Robert Habeck described the economic situation as "difficult" and warned that stagnation has persisted for an extended period, exacerbated by labour shortages, excessive bureaucracy, and insufficient public and private investment.

Market expectations currently point to two Fed rate cuts in 2025, beginning in June, while the ECB is expected to implement four rate cuts by year-end.

Euro weakens to 1.04 ahead of Powell

Following the Fed’s decision and ahead of Powell’s press conference, the euro fell to 1.04 against the US dollar, reflecting the greenback’s strength amid growing monetary policy divergence between the two economies.

Powell is also likely to face questions over Donald Trump’s renewed efforts to influence the Fed’s decision-making.

Speaking via videoconference at the World Economic Forum last week, the newly elected US president explicitly stated that he would push for lower interest rates, a stance that could increase political pressure on the central bank in the coming months.

Source: Euronews

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Winkelmann

Economic

With price stability as a key mandate, the Federal Reserve bears a significant responsibility to guarantee that the targeted price statistics accurately reflect people's experiences and are not influenced by political or statistical manipulation. However, the Fed's price targeting regime has become misleading and unbalanced since the price measure it targets has become less relevant to "actual" inflation. The Fed nowadays lacks a "Greenspan," or an individual who is both an expert in economic statistics and methodology and possesses the political power and influence to challenge the accuracy of published statistics or request their review. The matter of accurate price measurement is not just academic; it has real economic and financial effects.

Years ago, the Price Statistic Review Committee (PSRC), a group of academics, economists and statisticians, stated that, “If a satisfactory rent index for units comparable to those that are owner-occupied can be developed" then the committee recommends that BLS to use this approach for house prices and related expenses.

The General Accounting Office (GAO), which released a comprehensive report on how housing costs are measured in inflation metrics, made a similar suggestion. The GAO stated, "Most owner-occupied housing units differ significantly from many rental units. To apply rental equivalence in the CPI, a sufficient number of rental units must be identified that are comparable to owner-occupied units in terms of size, location, and quality, allowing the BLS to create a sample that accurately reflects owner-occupied houses."

In 1983, based on recommendations from the PSRC, GAO and others, the Bureau of Labor Statistics introduced the owners' rental equivalence method to estimate housing costs of owner-occupied homes. This estimation procedure continued until 1998, when the BLS announced that it had to discontinue the owner-sample due to an insufficient sample of owner-housing units. Moving forward, they decided to link the rent estimates for owners' rent to the other rent series. Neither the PSRC nor the GAO provided any comments.

The owners-occupied rent series constitutes roughly fifteen percent of the Fed's preferred price target, the personal consumption expenditure deflator (PCE). Combined with the thirty percent of the PCE that individuals do not buy, nearly half of the PCE deflator reflects an inflation rate derived from administered and non-market prices or imputations. How can this be regarded as a reliable or accurate measure of actual inflation people experience?

Price data should represent "actual" inflation, not a statistical distortion. Considering its essential role in shaping both monetary and fiscal policy, it is crucial for the price data to be accurate, relevant, and objective. The general public benefits from "actual" sustainable low inflation. But who gains when inflation might be understated, or its cyclical fluctuations are dampened or eliminated due to a new statistical method?

Over the past sixteen years, from 1998 to 2024, the average S&P 500 P/E ratio was 26.7. In contrast, during the preceding fifteen years, from 1983 to 1998, it averaged 15. Is this just a coincidence, or could the alteration in inflation estimation for housing costs, combined with the Fed's emphasis on an inflation measure representing only half of the actual inflation rate experienced by people, partly explain this shift? This misleading measure of inflation and policy approach has led to maintaining official rates lower than they might have been otherwise, which benefit finance, especially equity investments.

According to history, "Washington" is unlikely to change it frameworks (price and policy) unless another crisis occurs. The financial press could increase public awareness of this issue, but it has not done so yet. As long as the existing price and policy frameworks remain in place, finance benefits while "Joe Six Pack" loses ground to "actual" inflation.

Sources：Haver Analytics

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Economic

Central Bank

It is the shape and form of that new guidance that will interest currency markets, given the rate cut itself is already baked into the Euro.

"We expect the ECB to maintain its 'dovish' tone, supporting current market pricing for around three further cuts over the rest of the year," says Kristina Clifton, Senior Currency Strategist at Commonwealth Bank.

If the assessment is correct, it should weigh on the Euro, allowing for further gains by Pound Sterling and Dollar:

The Euro to Pound Sterling exchange rate (EURGBP) has been trending lower since February 22, and a 'dovish' ECB can help it extend the move (Pound to Euro rate goes higher).

The Euro to Dollar exchange rate's recovery rally looks to have peaked for now and further weakness is possible if the ECB signals a desire for further cuts.

"EUR/USD remains firmly below its 200-day moving average (1.0770), reinforcing the broader bearish bias," says Boris Kovacevic, Global Macro Strategist at Convera. "The eurozone economy remains fragile, with stagnating growth and rising risks of a technical recession."

The Eurozone economy is developing some slack, which the ECB will want to remedy with another rate cut.

CBA's Clifton explains that confidence is rising at the ECB that inflation will fall back to the 2% target later this year, despite December's uptick to 2.4%/yr.

"Economic growth has stagnated thanks to weak manufacturing activity and tepid consumer demand. Persistent political turmoil in Germany and France has added to uncertainty about the Eurozone growth outlook," she says.

The ECB is expected to cut interest rates in every meeting but one in the first half of the year, which is more than expected of the Federal Reserve and the Bank of England, making a fundamental case for Euro weakness against the Pound and Dollar.

Yet, this divergence has long been expected, and the ECB will need to 'outdove' existing expectations to drive further material weakness in the Euro.

This could be a high bar to leap, and this suggests the odds of an all-out rout of the Euro are limited.

Chris Turner, head of FX analysis at ING, says there are downside risks to the Euro if the market believes there is a chance of the ECB taking policy below neutral.

Neutral refers to the level of interest rates at which they are neither restrictive or stimulatory. Unfortunately for central bankers, the neutral rate is a bit of an enigma, as it is not static.

"Today's main topic of discussion could very well be the neutral rate, which is generally estimated to be around 2.25%. For reference, the low point in the ECB easing cycle was priced near 1.50% in early December and is priced at 2.06% today," says Turner.

ING economists think the ECB can cut rates to 1.75% in the second quarter, "so clearly there is some downside for short-dated EUR rates and the euro if we're right," Turner adds.

Euro Rebound Potential

Eurozone inflation rose to 2.4% in December from 2.2% and core inflation remained stuck at 2.7% for a fourth consecutive month.ar

On this basis, the ECB will note that core inflation in the Eurozone is not falling as fast as it would like, and this risks a delay to the fall in the headline rate of inflation to 2.0% on a sustained basis.

Also, Eurozone economic activity appears to have improved early in 2025, according to the January PMI reports, giving the ECB reason to maintain a cautious data-lead approach to further rate cuts while keeping its messaging broadly unchanged from the previous meeting.

The Euro would potentially recover in the event that the ECB places a greater emphasis to the improvements in the most recent data.

The ECB decision comes in the context of the Federal Reserve's decision on January 29 to maintain interest rates at unchanged levels, while guidance fortified expectations that the Fed will only cut once in 2025.

The ECB might not want to diverge too far from the Federal Reserve in order to maintain financial stability in currencies and interest rate markets. This will provide further reason to try and keep guidance relatively unchanged when compared to that issued at the previous meeting.

Source: Poundsterlinglive

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Warren Takunda

Economic

Asian share markets rose in thin trading on Thursday as much of the region was on holiday for the Lunar New Year, while the U.S. dollar held its ground after the Federal Reserve signaled a pause in policy easing.

The exception was the yen, which strengthened against rivals including the dollar with Japan's central bank seen as on track to continue raising interest rates while others reduce them.

The strong yen weighed on Japanese shares, although the Nikkei managed to close with small gains. Australia's stock benchmark edged to a record high.

The U.S. central bank held rates steady overnight as widely expected, with Fed Chair Jerome Powell saying there would be no rush to cut them again.

President Donald Trump's policies remain a risk for the Fed's policy outlook, and Saturday is likely to see new tariffs slapped on Canada, Mexico and possibly China as well.

"Powell was unwilling to be drawn on the potential economic impact and monetary policy response to tariffs, immigration and regulatory change, but clearly the tails of the risk distribution related to these factors are long and heavy," said Elliot Clark, head of international economics at Westpac.

"Powell made clear in the press conference though that, while strong, the economy is not overheated."

On Wall Street, after-the-bell earnings reports from members of the Magnificent Seven megacap tech stocks were a mixed bag.

Microsoft beat quarterly revenue estimates, while Tesla's fourth-quarter profit margin missed expectations. Meta forecast first-quarter revenue below market estimates. Apple reports results later Thursday.

The results did little to further the debate on Chinese startup DeepSeek's potential threat to U.S. dominance in artificial intelligence, and the big spending behind it - questions that triggered a rout in global tech stocks on Monday.

U.S. stock indexes ended slightly lower on Wednesday, and tech was the biggest drag on the S&P 500, as the benchmark slipped 0.5%.

However, the mood looks to have improved with futures pointing 0.3% higher as of 0656 GMT.

Australia's stock benchmark closed up 0.6%, while Japan's Nikkei ended 0.3% higher after overcoming some early weakness.

Most other major markets remained shut for holidays, including Hong Kong and mainland China.

The U.S. currency was overall steady against major peers at 107.92 on the dollar index , after ending Wednesday flat.

The euro edged down 0.1% to $1.0414 ahead of the European Central Bank's policy decision later in the day, with traders all but certain of a quarter-point rate cut, and looking for clues to justify the market view of up to three additional reductions this year.

Sterling was flat at $1.2440.

The yen, however, strengthened about 0.5% to 154.43 per dollar with Bank of Japan Deputy Governor Ryozo Himino saying in a speech that the central bank will continue to raise interest rates if the economy and prices move in line with its forecasts.

Traders currently expect one more quarter-point increase this year, potentially as soon as July.

Oil prices ticked higher, regaining some composure after U.S. crude closed at the lowest level this year overnight, with the near-term focus on Trump's possible tariffs on Canada and Mexico, the two largest suppliers of crude to the United States.

U.S. crude futures rose 0.2% to $72.73 per barrel. Brent crude futures added 0.1% to $76.64 a barrel.

Source: Reuters

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Winkelmann

Economic

Has the traditional business cycle become obsolete? Not entirely, but major substantial changes in monetary policies and in the methods for calculating price measurement statistics, have altered the manner in which business cycles end. Business cycles consist of two components: an economic cycle and a financial cycle. Changes in policy and price measurement have shifted the pressures and excesses of the business cycle from the economy to the financial sector. In other words, high P/E ratios have taken the place of high CPI figures.

What Causes the Ups and Downs of a Business Cycles?

Some analysts and academics argue that the traditional business cycle characterized by increasing inflation and interest rates that eventually leads to an end of the cycle no longer exists. This perspective is somewhat supported when comparing business cycles before 1990 with those after.

For instance, since 1990, every business cycle has concluded with relatively low headline and core inflation. In contrast, from 1960 to 1990, business cycles ended with inflation rates of at least 5%, sometimes reaching double digits, with official rates significantly exceeding reported inflation.

However, to assess whether the traditional business cycle is now obsolete, it is crucial to first ascertain if the expansion and recession phases are influenced by government fiscal and monetary policies, developments in financial markets, or an exogenous shock. (Note: The business cycle that ended in 2020 was initiated by an unforeseen event, the pandemic, unlike the recessions of 2000 and 2007. However, in all three instances, both headline and core inflation were relatively low).

Essentially, significant technological advancements and globalization from the mid-1990s and beyond have decreased business cycle volatility, limiting or postponing price pressures that previously would have arisen during a typical business cycle. However, there are other factors at work as well.

During the mid-1990s, the approach to conducting monetary policy shifted from focusing on money and credit growth to targeting real interest rates. Most financial market analysts, myself included, did not initially see this shift in monetary policy as a major transformation. However, it turned into one when the BLS altered its method of measuring consumer prices in 1998.

In the late 1990s, the BLS stopped surveying the owner-occupied housing market to estimate owners' equivalent rent and began using data from the primary rental market, despite the fact that these two housing markets are influenced by different factors and frequently exhibit significantly different supply and demand patterns. At the same time, non-housing financing costs were removed from the CPI, continuing the previous exclusion of housing financing costs in the 1980s.

At that time, participants in the financial market did not consider these changes in price measurement to be significant. However, they were extremely important. During the housing bubble of the early 2000s, while housing prices experienced double-digit increases, the CPI indicated housing cost increases of only 2% to 4%. If the BLS had not implemented the measurement changes in the late 1990s, reported inflation would have been easily double what was reported.

(Note: The BLS excluded housing prices from the CPI in 1983, but continued to survey owner-occupied housing to estimate the implied rent for homeowners, maintaining a direct connection between housing inflation and increases in owners' rent. This connection was severed with the measurement changes in 1998).

The removal of non-mortgage interest costs also had a big impact on reported inflation. A joint research project by economists from Harvard and MIT found that the CPI from 2021 to 2023 would have been twice as high if consumer financing costs for were still included in price measurement.

Still, altering the methods for measuring prices had notable economic and financial impacts. Indeed, the revised CPI measure exhibits significantly less cyclicality, leading the Fed to aim for lower nominal and real interest rates than it would have if the BLS had not made these adjustments. This has led to considerably higher P/E ratios since 2000.

Economic downturns can stem from asset markets, as shown by the stock market crashes in 2000 and 2007, followed by recessions. The S&P 500 is trading at 22 times the projected earnings for 2025, and even higher compared to free cash flow projections. Other market indicators, such as the price-to-sales ratio, are also exceptionally high.

Therefore, the equity market is susceptible, particularly to an additional increase in market interest rates. Historically, the risk of recession increases when the yield on the 10-year Treasury surpasses the growth in Nominal GDP. According to current figures, there is merely a positive spread of 20 basis points with GDP outpacing the yield on the 10-year Treasury. However, current yields might still be too high given the lofty levels of the equity market.

However, the primary threat to the equity market and the economy lies in the fiscal strategies of the new administration. With the existing budget approaching $2 trillion, it is not financially viable to make the 2017 tax cuts permanent, as they are estimated to cost $4 trillion over the next decade, along with introducing further federal tax cuts. Even if the new Administration succeeds in reducing federal spending, it will not be significant enough to offset both past and new tax cuts, resulting in a budget deficit as large or larger than the current one.

More than three decades ago, President Bill Clinton shifted from his new economic agenda, which featured a middle-class tax cut, to a deficit-reduction strategy in response to the threat of increasing interest rates. At that time, the US was dealing with projected budget deficits ranging from $300 to $400 billion, compared to today's deficits exceeding $2 trillion.

Should the Trump economic team ignore the lessons from 2000, 2007, or even 1993, there is a genuine risk of a significant increase in interest rates. Market interest rates have previously impacted the fiscal strategies of a new president, and they have the potential to do so again, if not, the risk of financial chaos will increase.