J.P. Morgan: Agricultural risk premiums retreat; JPMorgan expects inventories to tighten further

Why have agricultural prices retreated despite weather risks?

The BCOM Agriculture Index’s year-to-date gain has fallen from a peak of 24% in early September to about 8.5%. Pressure from the US harvest season, increased corn supplies and slow progress in Chinese purchases of US agricultural products have all weighed on prices.
JPMorgan estimates that non-commercial net long positions in US agricultural futures and options fell by at least 40% from the previous period, returning to around early-August levels. A weaker Brazilian real also increased local producers’ willingness to sell into dollar-denominated export markets.
The bank believes the fundamental outlook for agricultural commodities in the 2026/27 season changed little over the month, making such a large sell-off difficult to explain; the price decline in October has drawn some buyers back, and US corn and wheat export sales also rose markedly during the week.

JPMorgan expects weather- and nutrient-related factors to weigh on yields and, together with growing biofuel demand, generally reduce stocks-to-use ratios across major agricultural commodities in the 2026/27 season. The tightening trend may continue into the 2027/28 season.
Palm oil faces the greatest pressure: the bank expects global inventories to fall about 20% year on year in the 2026/27 season. Drought in Indonesian growing regions is affecting yields, while biodiesel demand continues to grow; however, historically high Malaysian inventories are currently cushioning the price impact, and the production effects are expected to become more apparent in 2027, especially in the second half.
Global sugar inventories are expected to fall 10% year on year, as El Niño-related production losses in Brazil, India and Southeast Asia combine with drought losses in Europe. Sugar consumption remains weak, and JPMorgan expects a modest market deficit of about 5.7 million tonnes.

JPMorgan expects global corn inventories to fall more than 9% year on year in the 2026/27 season; the decline could be greater if the risk of El Niño-related production losses in Brazil or Argentina materializes. Lower European production and restricted Ukrainian exports are expected to support demand for US exports.
Wheat inventories are expected to fall about 3% year on year, with higher opening stocks cushioning the impact of lower production in the US and Europe. The bank expects global output to recover in the 2027/28 season as winter wheat plantings increase and growing conditions improve.
Soybean and corn planting is progressing well in South America, but dryness in central and northern Brazil and excessive rain in the south continue to affect the crop outlook. The bank expects global soybean inventories to fall about 3% year on year in the 2026/27 season, while its forecast for a record Brazilian soybean crop of 185 million tonnes remains subject to weather risk.

The report says China’s commitment in May to purchase 25 million tonnes of US soybeans is proceeding as planned; annual purchases of US agricultural products other than soybeans worth 17 billion US dollars have yet to begin in earnest, with the 2026 amount calculated pro rata. JPMorgan believes subsequent purchases could be an upside catalyst for corn, wheat and cotton prices.
The bank expects Malaysian palm oil to average 5400 ringgit per tonne in 2027, above its fourth-quarter 2026 forecast of 4700 ringgit; CBOT wheat is expected to decline from an average of 640 US cents per bushel in the fourth quarter of 2026 to 600 US cents in the fourth quarter of 2027 as supplies improve.
An extremely strong El Niño is approaching its peak, and rainfall anomalies are expected to persist through January 2027. JPMorgan believes weather risk premiums for the affected commodities may change as harvesting accelerates in the first quarter of 2027 and the production impact becomes clearer.