PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 11:58 UK, 6th Feb 2014, by Agrimoney.com
Strong demand 'limits' scope for crop price falls

A further drop in crop prices, which have fallen to a 19-month low, could be limited by demand from importing countries, keen to buy at cheaper values and avoid again becoming vulnerable to low stocks levels.

World food prices fell last month to their lowest since June 2012, according to the United Nations food agency, the Food and Agriculture Organization.

The decline reflected weakness in all segments except dairy, for which prices rose to a six-year high, "largely reflecting strong demand, especially from China, North Africa, the Middle East and Russia", the FAO said.

Prices of sugar, undermined by "large export surpluses on the back of bumper crops", and cereals fell to their lowest in nearly four years.

For grains "bumper crops in 2013 helped to boost inventories, which, along with large export supplies, have pushed down international prices to well below their high levels in 2012 and early months of 2013," the UN said.

"With early prospects for 2014 crops also favourable, prices of most cereals declined further."

'May be an opportunity'

However, FAO economist Abdolreza Abbassian cautioned that scope for further downside in crop prices may be limited by the appetite for importers to exploit weaker values.

"We're seeing lower prices due to abundant supplies. But stronger upturn in demand, such as an increase in the pace of imports from Asia, could limit the decline," Mr Abbassian said.

The revived crop jitters, evident in the concerns over Brazilian dryness and US cold which have lifted prices of coffee, sugar and wheat this month, have "definitely got people thinking" whether values could face a longer-term rise.

"Prices have come down to levels where people think this may be an opportunity, a level which encourages demand," he told Agrimoney.com.

'Mindsets have changed'

A willingness to buy may also reflect a change in strategy by importing countries, having been caught out by food price spikes, which many commentators have linked to political unrest including the 2011 upsets in North Africa.

"I feel that mindsets have changed in terms of letting grains stocks dwindle to levels which they feel uncomfortable with," Mr Abbassian said.

"They will not want to let stocks down as they did a few years ago, and become at the mercy of international markets."

Indeed, there could be a situation where it becomes a "super popular" policy among importers to run food stocks at higher levels, "at basically any cost, to get a certain sense of security".

Harvest upgrade

The comments came as wheat prices extended gains, adding 0.2% to $5.88 a bushel to stand 6% higher over the past week, while sugar added 0.3% to 16.15 cents a pound, taking its headway since last Thursday to approaching 8%.

However, the FAO was upbeat over supplies, lifting its estimate for 2013 world cereals production in to 2.50bn tonnes, a rise of 8.5% year on year.

Inventories will rise 13.5% to 573m tonnes.

"At this level, the stocks-to-use ratio for global cereals would top 23.5% in 2013-14, its highest value since 2002-03 and well above its historical low of 18.4% registered in 2007-08," the agency said.

LINKS
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events