Prices of agricultural raw materials have sustained their upward momentum that began in the second quarter of last year. The Raw Material Price Index stands nearly 18% higher than a year ago, led by cotton and rubber prices. Raw material prices are expected to average 10% higher this year, compared to 2020, before stabilizing in 2022, according to the World Bank’s Commodity Markets Outlook.
Strong demand for cotton supports prices. Cotton prices have averaged above $2/kg during the past four months, up nearly 35% from a year ago. The overall price strength reflects upward revisions to the outlook for global consumption (led by China and India), which is expected to reach 24.8 million metric tons in the current season (ending August 2021), almost 9% higher than 2019-20. Cotton prices have also been supported by lower supplies, with global production projected to fall 7% this season before recovering slightly in 2021-22. The production declines (which reflect reduced plantings in the U.S., India, and Pakistan), coupled with strengthening of consumption, pushed the stocks-to-use ratio (a measure of supply relative to demand) down to 88% during the current season, from last season’s 98%. Cotton prices are expected to average more than 20% higher in 2021, compared to 2020, followed by a small increase in 2022.
Natural rubber prices have staged a remarkable recovery. Natural rubber prices averaged 70% higher in May (y/y), when numerous tire manufacturing facilities closed in response to mobility restrictions and weak auto demand (two-thirds of natural rubber is used in tire manufacturing). The recovery of the global auto sector, which began in the last quarter of 2020, has boosted demand for natural rubber. Global natural rubber consumption grew by 160,000 metric tons in 2020Q4 (y/y), or 5%, led by recovery in China’s tire manufacturing. On the supply side, there are still problems with labor availability in some countries (e.g., Thailand) due to border restrictions on labor movement. Natural rubber prices are expected to average 30% higher in 2021, compared to 2020, before stabilizing in 2022.
Natural rubber consumption and production
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