PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 16:39 UK, 4th Jul 2016, by Agrimoney.com
'Era of high ag prices quite likely over' - OECD, UN

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 Agriculture Organization.

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… under pressure".

The report added: "By contrast, corn prices are not expected to fall any further in 2016," but are also poised for sub-inflationary gains longer-term.

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.

Best performers

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 herds."

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."

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