The period of high ag commodity prices is "quite likely over",
sapped by a slowdown in population growth, the OECD and United Nations said - although
milk powder, ethanol and soymeal values look poised to outperform.
The drop in agricultural commodity prices last year – when
the sector offered negative returns of 15.6%, taking three-year losses to 34%, according
to Bcom indices – highlighted a structural shift in value prospects.
"Prices for the main crops, livestock and fish products all
fell in 2015, signalling that an era of high prices is quite likely over for
all sub-sectors," according to a report from the OECD and the UN's Food and
The downturn reflected factors including "several years of
robust supply growth, weakening demand growth… lower oil prices and further
accumulation of already abundant stocks".
And prices look set, over the next decade to "remain below
recent peak levels", undermined by a drop to 1% a year in the rate of world population
growth, and economic slowdown in some countries, with Chinese GDP seen
expanding by 6% a year, down from 9% a year over the past decade.
Sugar, wheat softness
In real terms, ie stripping out the impact of general inflation,
the performance will be even worse, with prices of many agricultural commodities
declining over the next decade.
Top ag performers - forecasts for 2025 price, and change on 2016
Skim milk powder (Oceania export price): $3,116 per tonne, +40%
Ethanol (US wholesale price, Omaha): $60.30 per tonne, +29%
Whole milk powder (Oceania export price): $3,116 per tonne, +27%
Protein meal (average, EU ports): $368.50 per tonne, +27%
Non-corn coarse grains (feed barley, Rouen): $190 per tonne, +21%
Source: OECD-FAO report
This includes raw sugar, for which "global production [is] projected
to meet the growing demand in developing countries", and wheat, for which "a
combination of rebuilt global stocks and sluggish demand will keep prices…
The report added: "By contrast, corn prices are not expected
to fall any further in 2016," but are also poised for sub-inflationary gains
Values of other coarse grains, meanwhile, will gain support
from "high demand for animal feed in China", which is a large producer of corn
but not the likes of barley or sorghum.
However, skim milk powder will be the best performer amongst
commodities covered by the report, seeing value gains of 40%, followed by a 27%
surge in prices of whole milk powder, boosted by strong demand.
Worst ag performers - forecasts for 2025 price, and change on 2016
Raw sugar: $341.90 per tonne, +5.1%
Rice (Bangkok, FOB): $416.30 per tonne, +4.2%
Fish, aquaculture: $2,184.30 per tonne, +4.9%
Non-soybean oilseeds (rapeseed, Hamburg): $433.10 per tonne, +8.1%
Wheat (hard red winter, US Gulf ports): $236.90 per tonne, +9.4%
Source: OECD-FAO report
"Per capita consumption of dairy products in developing
countries… will increase by 21% compared to the base period and be heavily
oriented towards fresh dairy products," the OECD and FAO said, flagging India,
Pakistan and Turkey as particular growth markets.
Meanwhile, in developed countries, "per capita consumption
is projected to grow even faster in the next decade than in the previous one,"
driven by increases in the former Soviet Union.
"The comparably stronger demand for dairy products and required
costly expansion of production capacity push prices for dairy products higher."
Ethanol prices will also "increase at a faster rate than
most other agricultural commodities, reflecting the faster recovery of the
crude oil prices", the report said.
And oilseed meal prices will also grow relatively strongly,
driven by the needs of a livestock industry keeping up with growing world
demand for meat, of the expanding dairy industry.
Area vs yield
The report forecasts that some 80% of increased crop production,
needed to meet rising demand, will be achieved by yield expansion.
"The increased demand for food is projected to be satisfied
through productivity gains, with modest changes in crop area and livestock
Only Latin America and sub-Saharan Africa will see notable
expansion in agricultural area, with growth facing the "set of challenges"
presented by softer growth in demand growth, and ag prices.
"The resulting weakening of agricultural markets makes the
sector less attractive for investments, limiting total agricultural output
growth to 1.6% per annum on average during the projection period."