Focus for the week: FY’25 Agriculture Outlook – Walking a fine line

Supply dynamics stoke CPO prices

In 2024, global palm oil production faced considerable challenges, primarily due to adverse climatic conditions driven by the El Niño weather phenomenon. This event, which persisted through much of the year, brought unusually dry weather to key producing regions, particularly Indonesia and Malaysia, leading to an estimated 10-15% yield decline. Furthermore, the prolonged drought through the third quarter of 2024 exacerbated the situation as rainfall levels remained below average, leading to lower harvests and tighter supplies, which supported higher prices. Malaysia’s production was further constrained by persistent labour shortages, a lingering issue from prior years, compounding the supply challenges faced by the industry. On the demand side, demand for palm oil remained robust, as the growing utilization of palm oil in biofuel production played a pivotal role in shaping market trends. In Southeast Asia, biodiesel programs such as Indonesia’s B35 mandate underpinned domestic demand, effectively stabilizing prices despite production constraints.

In international markets, palm oil consumption remained robust. India and China, the largest global importers, maintained steady import levels, and collectively purchased over 20 million metric tons in 2024, relying heavily on palm oil for both food and industrial uses. However, stricter deforestation policies in the European Union moderated demand, redirecting focus toward sustainably sourced palm oil.

India’s policies also had a significant impact. In an effort to reduce reliance on imported edible oils and protect its domestic refining industry, the Indian government raised import duties on crude and refined palm oil to 27.5% and 35.75%, respectively, in September 2024. That said, palm oil prices surged in 2024, rising by 50% year-to- date, supported by resilient demand from major importers and constrained supply from top producers.

A double-sided coin for domestic players

In 2024, local crude palm oil (CPO) prices remained buoyant, rising by 13% to

₦1,359.97/kg in major markets, supported by elevated global CPO prices.

This trend is expected to persist in 2025, creating upside potential for domestic CPO producers. The sustained increase in global prices, driven by lower production from key producing countries like Indonesia and Malaysia due to adverse weather conditions and labour shortages, has strengthened the outlook for the domestic market.

Currency dynamics have further influenced the local CPO market. The significant devaluation of the naira in 2024 has made imported CPO and refined palm oil products less attractive due to higher landing costs. Consequently, this has incentivized greater reliance on local production, supporting price stability and revenue growth for domestic producers

What shaped the past week?

Equities: This week, the Nigerian bourse traded on a bullish note, gaining 1.76% w/w to settle at 101,129.09pts. This came off the back of broad-based sectoral gains. At the top was the Insurance sector (+8.83% w/w), followed by the Banking index (+3.235 w/w), then the Consumer Goods space (+2.92% w/w), and lastly, the Oil & Gas index (+0.99% w/w). On the flip side, the Industrial index (-0.86% w/w) was again subdued. Leading the gainers chart for the week was MRS (+36.36% w/w), closely followed by ETERNA (+32.36% w/w) as investors reacted to positive news in the space.  Other notable top performers were SUNUASSUR (+22.79% w/w), INTBREW (+20.77% w/w), and ARADEL (+20.73% w/w). On the decliners chart, small cap names such as JOHNHOLT (-18.67% w/w), MULTIVERSE (-18.58% w/w), UPL (-16.27% w/w), and TANTALIZER (-13.04% w/w) topped it.

Fixed Income: On Monday, the DMO, through CBN, conducted a Bonds auction. At the auction, the APR-2029 and FEB-2031 notes were reissued, with offers of ₦60 billion each. Total bids surpassed ₦278 billion, but allocation came in at ₦52 billion and ₦159 billion respectively, with stop rates printing at 21.14% (prev: 21.00%) and 22.00% (prev: 22.00%) respectively. This further constrained system liquidity. However, some FAAC inflows were recorded later thus moderating liquidity constraints (Friday: ₦378 billion negative). Following this, OPR moderated by 75bps w/w to 31.79% w/w. At the secondary market, trading sentiments were generally weak albeit with a bearish tilt. Changes were seen as follows – 91-day (+78bps w/w), 182-day (-0.68% w/w), 364-day (-51bps w/w), 2-year (+68bps w/w), 5-year (+733bps w/w), 10-year (+4bps w/w), and 20-year (+3bps w/w).

Currency: At the NAFEM, the Naira depreciated by ₦8.68 w/w to close the week at ₦1,541.68 per dollar.

Domestic Economy:

The Federal government plans to spend ₦49.7 trillion ($32 billion) and receive ₦34.8 trillion in revenue come 2025. That leaves a deficit of ₦13.1 trillion, or about 3.9% of gross domestic product, which the nation will fund by raising debt in local and international markets. The government’s revenue targets are based on an oil price of $75 per barrel and an output of 2.06 million barrels per day. Nigeria’s budget deficit may be larger than anticipated due to its lofty assumptions, which could necessitate a supplementary budget launch should revenue assumptions falter. In recent times, Nigeria’s revenue outturns have been supported by one-off items such as grants and donations, which cover up the shortfall from main revenue line items. While consensus expectations of lower oil prices could dampen revenue generation efforts, weaker-than-anticipated exchange rate outturns could lift dollar-denominated expenses, such as debt servicing.

Global: The U.S. central bank cut interest rates on Wednesday, as expected, but Federal Reserve Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation. Powell’s explicit – and repeated – references to the need for caution from here on jolted Wall Street, sending stocks sharply lower, bond yields higher and leading investors to dial back estimates of how far borrowing costs are likely to fall over the coming year.

Following this, major US indices showed skittish sentiments, The DJIA rose by a meagre 0.04%, to 42,342.24pts, the S&P 500 lost 0.09%, to 5,867.08pts, and the Nasdaq lost 0.10%, to 19,372.77pts. Meanwhile, the dollar index briefly reached a two-year peak of 108.54 on Friday. Over in Europe, stocks suffer worst session for five weeks after Fed outlook, Bank of England holds rates. The pan-European Stoxx 600 index closed 1.51% lower on Thursday, to close at 506.66 points. In the UK, the pound was flat against the dollar at $1.2500 on Friday, after it slipped to a one-month low of $1.2475 earlier in the day. The BoE held its main interest rate unchanged at 4.75% on Thursday but policymakers had become more divided about whether rate cuts were needed to tackle a slowing economy. Also, British retailers reported a weak run-up to the Christmas holidays with sales falling again and businesses worrying about higher costs in 2025. At Friday’s close we saw the FTSE 100 lose 0.15% on the day to 8092.85pts. Finally in the APAC region, markets mostly fell on Friday as investors digest inflation data out of Japan, as well as an interest rate decision out of China, amid the backdrop of the Fed’s earlier statement. The People’s Bank of China held its loan prime rates steady on Friday, leaving the one-year rate unchanged at 3.1% and the five-year rate at 3.6%. In the markets, China’s CSI 300 dropped 0.45% to close at 3,927.74pts, Hong Kong’s Hang Seng index lost 0.16% to close at 19,720.70pts. Japan’s headline inflation came in at 2.9%, higher than the 2.3% seen in October. The, Japan’s Nikkei 225 fell 0.29% on Friday and closed at 38,701.90pts, while the broad-based Topix slipped 0.44% and finished at 2,701.99pts. Finally, Australia’s S&P/ASX 200 fell 1.24% to close at 8,067pts on Friday, its lowest closing level since September.

What will shape markets in the coming week?

Equities market: Following another week of bullish momentum, we see the rally filtering into the Christmas week. However, profit taking activities in select gainers is also expected. Overall, we see transaction volumes falling w/w as traders close their books due to the holidays scheduled for next week.

Fixed Income: Due to the holidays scheduled for next week as well as the NTBs auction, we expect to see subdued trading activities across the market during the week.