There is a strong Relative Value bias within their 2023 commodity outlook.


Agriculture
Long S&P GSCI Soybean Index, Short S&P GSCI Softs Index. As energy constrains
household incomes globally, consumers are cutting back on discretionary purchases, not
only hitting new economy earnings dependent on advertising but also end demand for
soft commodities - coffee, cocoa, and cotton in particular. Moreover, supply of these
commodities is likely to sequentially improve next year after frost in Latin America and
drought in southern US pushed yields in coffee and cotton far away from trend.
Conversely, although US soybeans face growing export competition from Brazil in 1Q23,
the rapid growth of crush capacity, strong Chinese spot buying and the need to ration
demand into the US planting season

Softs
Softs remain the weakest part of the agricultural complex going into 2023, as the drivers
of the inflation duration cycle – shifting household spending away from consumer
discretionary purchases toward key energy commodities – end up lowering softs
demand as global growth slows. In cocoa, we see downside risks to price in 2023 as a
combination of favourable weather supports West African production while the
post-COVID boom in tourism – a major component in global demand – is set to slow
further as real wages across DMs fall. While the demand picture weakens, globally high
fertilizer prices leave small hold producers priced out of the market, exposing 2023
production to the potential for weather shocks.
In coffee, improved Brazilian harvests finally led to the capitulation of the coffee market,
ending the round trip that started in July 2021 when unexpected frost damaged Brazil’s
coffee crop. With Brazilian exports expected to continue to rise into 2023 and coffee
demand slowing, we do not expect coffee to revisit the highs without a significant weather event, such as another frost. While ICE inventories remain near multi-year lows,
they have become an increasingly distorted signal of tightness. Nevertheless, with
coffee oversold in the short run, we expect near term upside into 2023, before deflation
resumes for the remainder of 2023.