Agribusiness bonds will do well, with or without vaccine

A NUMBER of vaccine candidates are on the horizon, but with virus cases still rising, the tendency to hoard food should support a positive outlook for agribusiness bond issuers.

Agriculture prices have risen sharply over the last few months, a trend that may continue into 2021. The Bloomberg Agriculture Sub-index, which tracks the performance of a basket of futures contracts including coffee, corn, wheat and soybeans, has climbed 22 per cent between end-June and Nov 11. In comparison, the S&P 500 index gained 15 per cent during this period.

Low production, dry weather, tighter exportable supplies and high demand support crop prices. According to the USDA, the price of wheat is projected to rise as the amount of exports has exceeded domestic production. Likewise, lower supply in South America and strong demand have pushed export prices of soybeans in the US and Argentina to their highest levels since July 2016. Under the Phase One trade deal with the US, China has committed to acquire more farming products and this could keep procurement orders at an elevated level.