11:56 UK, 23rd June 2010, by Agrimoney.com
Crop prices to rise but not spike, says USDA guru

Crops are in for a long-term rise in prices - but this increase looks unlikely to escalate into a spike for now, the official in charge of the US Department of Agriculture's far-ahead forecasts has said.

It was "highly unlikely" that crop markets would witness 2008-style price rises "in the near future, particularly in the next three to four years", USDA official Ron Trostle said.

Historically, the kind of price spikes seen in the early 1970s and during the recent run, which he traced back to 2002, only happened "every three decades or so", he said.

Furthermore, world crop stocks "are much higher than they were" before the last rally.

"It will take some time to work these off."

Land constraints 

However, longer-term he said there would be "substantial [upward] pressure on agricultural prices", caused in part by the extra demand brought by population growth and greater wealth, which would raise consumption of grain-intensive products such as meat and dairy.

"I see these as long-term factors pushing prices up," said Mr Trostle, who co-ordinates the preparation of the USDA's influential 10-year "baseline" forecasts on world agriculture.

Growth in production, meanwhile, would be constrained by a dearth of suitable land.

"The expansion of land area cropped is going to have difficulty continuing at the rate it has in the past," Mr Trostle said.

"The area under irrigation in the world is going to be increasingly difficult to expand."

Prices would be further supported by higher farm bills, notably in fertilizer costs, which "are in general going to go up".

Speculators to blame? 

The comments came during a conference debate on commodity price spikes, which Mariann Fischer Boel, the European Union's former agriculture commissioner, blamed largey on speculators.

"A lot of people got out of stocks and shares and invested in agricultural commodities," she told the Agriculture Outlook conference.

"I am sure that this had a much higher influence [on prices] than a lot of people imagine."

Mr Trostle said that academic research on the influence of speculators was "inconclusive" but noted their increasing presence in 2006-08.

"How can that not have had� an impact on prices," he said.

Futures vs cash prices 

But Carl Hausmann, a top executive at agribusiness giant Bunge, noted that cash prices for grains had shown a widening discount to futures during the price spike.

"Rarely do these bubbles impact the price of wheat in Missouri", he said, noting an official investigation into Bunge over why it was paying $3 a bushel less for wheat than futures prices.

"The fact is that the price of wheat went up $3 too much," said Mr Hausmann, the former chief executive of Bunge in Europe and North America, now head of the group's corporate affairs.

EXTRA OPTIONS
PRINTABLE VERSION
EMAIL TO A FRIEND
RSS FEEDS
RELATED ARTICLES
Canada rape acres soar, wheat sowings fall - a bit
Silos and transport 'offer good scope for profits'
Wheat price 'vulnerable to 33% price spike'
Canada woes send Paris rapeseed to 19-month high
Oats goes limit up as Canada braces for more rain