prospects for food commodity prices by sally thompson ...implications for agricultural trade and...

Prospects for Food Commodity Prices

by Sally Thompson

(with assistance from Ron Trostle)

Power Point Presentation for the International Agricultural Trade Research Consortium

Analytic Symposium “Confronting Food Price Inflation:

Implications for Agricultural Trade and Policies”

June 22-23, 2009 Seattle, Washington

1

Prospects for Food Commodity Prices

Sally Thompson

(with much assistance from Ron Trostle)

Economic Research Service

U.S. Department of Agriculture

International Agricultural Trade Research Consortium

June 22, 2009

?

2

0

50

100

150

200

250

300

350

400

450

500

550

Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05

Corn

Soybeans

Wheat

Rice

Food commodity index

Index: January 2002 = 100

Spikes in food commodity prices:

Will this time be any different?

Source: International Monetary Fund: International Financial Statistics

3

0

50

100

150

200

250

198

0M1

198

2M1

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4M1

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6M1

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8M1

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0M1

199

2M1

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4M1

199

6M1

199

8M1

200

0M1

200

2M1

200

4M1

200

6M1

200

8M1

Food commodity price index



Food commodity prices since January 2002:

Up 130 %, then down 1/3

4

0

100

200

300

Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09


Source of data for nominal prices and weights: International Monetary Fund

Nominal Crop Price IndexWeighted average of 4 crops (wheat, soybeans, corn & rice) 1/

1/ IMF monthly prices weighted by world exports.

5+ years:

prices rose 80%

9 months:

prices fell

40%

1 year:

prices rose

80% again

June 2007

June 2008

December 2008

5

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

1992M1 1996M1 2000M1 2004M1 2008M1

Crude oil

Average of all comodities



Prices of many commodities

rose even more


+ 130 %

+ 330 %

+ 585 %

6

0

50

100

150

200

250

300

350

400

450

500

550

20

07

M1

20

07

M4

20

07

M7

20

07

M1

0

8-J

an

20

08

M4

20

08

M7

20

08

M1

0

Jan

-09

20

09

M4

20

09

M7

Corn

Soybeans

Wheat

Rice




Food commodity prices:Indices for selected crops and total food

7

0

100

200

300

400

500

600

700

Jan 1970 Jan 75 Jan 80 Jan 85 Jan 90 Jan 95 Jan 2000 Jan 05



Crop price increases: real vs. nominalWeighted average of 4 crops (wheat, soybeans, corn & rice) 1/

Real prices

Nominal prices

226%

163%

178%

202%


8

0

100

200

300

Jan 80 Jan 85 Jan 90 Jan 95 Jan 2000 Jan 05



Crop and meat prices (nominal)


Weighted average of 4 crops (wheat, soybeans, corn & rice) 1/

Simple average of 3 meats (beef, pork & chicken)

9

Factors contributing to higher

food commodity prices1996 1998 2000 2002 2004 2006 2007 2008

Strong growth in demand, based on:

Increasing population + Strong economic growth + Rising per capita meat consumption

Slowing growth in agricultural production

Rapid expansion of biofuels production

Dollar devaluation

Large foreign exchange reserves

Adverse weather

Exporter policies

Importer policies

Aggressive

purchases by

importers

Declining demand for stocks of food commodities

Escalating crude oil price

Rising farm production costs

Supply factors in green

Demand factors in yellow

10

Factors that may influence

future ag prices• Nearer Term

– Economic slow down, & recovery

– Cost of energy (& other non ag prices)

– Costs of ag production

– Stock levels (Supply & demand balances; stocking policies; self-sufficiency policies)

– Policy changes by exporters & by importers

– Exchange rates (Esp. for commodities denominated in dollars)

– Weather

– Import demand: Who will be the importers? (Role of foreign exchange reserves)

• Intermediate Term– Biofuels production (Role of policies and profitability)

– Consumption patterns (Continued increase in per capita meat consumption?)

• Longer Term– Technology advancements

• Continued slowing of growth in productivity? R&D investments. Acceptance of GMO products.

– Natural resource constraints• Land: Ability to expand cultivated area; productive capacity of new land

• Water: Fertilizer (ability to continue rate of growth in irrigated areas

– Climate change and related legislation—e.g. Waxman-Markey• Impact of temperature, precip, and growing season changes on cropping patterns & productivity.

– Potential revisions to projected population growth

11

Factors contributing to changes in

food commodity pricesContinuing upward pressure on prices

Demand factors: Supply factors:Temporary factors:

Economic

growth in many

developing

countries

Population growth

in developing

countries

Increasing per

capita meat

consumption

Continued

biofuels

production

Energy

prices

Ag

production

costs

Slowing

growth in

total crop

production

Adverse

weather

Trade policies

by exporters

and importers

Aggressive

buying by

importers

Value of dollar

Role of large

foreign exchange

reserves

Uncertain

future impact:

Demand factorsSupply factors

12

USDA Baseline

• 10-year projection of major commodities

- Supply, demand, trade, and prices.

- Based on November 2008 market conditions. Released Feb 2009

• Assumes continuation of current U.S. law and

- continuation of existing international trade agreements

- normal weather

• Applications of long run agricultural projections

– Budget estimates (FSA), Baseline reports (ERS), Special requests,

research

• Linked Country Model (―Linker‖)

- Annual model - dynamic partial equilibrium, 40 countries/regions,

Linked with FAPSIM as U.S. model, 24 commodity markets

Solves for prices and trade that clear world and country commodity

markets

Equilibrates: (Supply = Demand) and (Imports = Exports)

13

0

2

4

6

8

10

12

14

16

1980/81 1985 1990 1995 2000 2005 2010 2015

U.S. commodity prices: soybeans, wheat, corn & riceHistory, current year, & projections

$ per bushel (per cwt for rice)

Corn

Wheat

Soybeans

Source: USDA Agricultural Baseline Projections to 2018, February 2009.

Projections made in November 2008 Rice

14

500

750

1000

1250

1500

1750

2000

2250

2500

1990 1995 2000 2005 2010 2015

Livestock Prices

$ per metric ton, Nominal, U.S. markets Beef cattle:

Choice steers, Nebraska

Broilers:

12-city market price

Hogs:

National base

Source: USDA Agricultural Projections to 2018, February 2009

15

-6

-3

0

3

6

9

1996 2001 2006 2011 2016

GDP growth slows in 2008 & 2009 1/

Percent

Developing Asia

Former Soviet Union

Latin America

Africa

Source: USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.

World

OECD Countries

1/ Projections based on assumptions made in October, 2008

16

GDP growth down in 2008-101/

-20

-15

-10

-5

0

5

10

15

1990 1995 2000 2005 2010 2015 2020

An

nu

al

perc

en

t ch

an

ge

FSU

Developing Asia

AfricaLatin America

OECD Countries

World

Source: ERS International Macroeconomic Data Set, 2009.

1/ Data for 2008 is preliminary while data for 2009 are estimates based on partial year.

17

GDP growth slows even in China

and India

-6

-4

-2

0

2

4

6

8

10

12

14

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: ERS International Macroeconomic Data Set, 2009.

An

nu

al

perc

en

t ch

an

ge

China

India USA

EU27

18

0

1

2

3

1981-90

1991-2000

2001-08

2009-18

Population growth continues to slow

Percent

Source: U.S. Department of Commerce, U.S. Census Bureau and U.S. Department of Agriculture,

Economic Research Service.

USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.

World

United States

Former

Soviet

Union

Africa

Middle

East

Asia

Latin

America

Developing

countries

19

0

10

20

30

40

50

60

70

80

90

100

1990 1995 2000 2005 2010 2015

Dollars per barrel

Refiner acquisition cost,

crude oil imports

Refiner acquisition cost,

adjusted for inflation


U.S. crude oil prices

20

0

20

40

60

80

100

120

1974 1979 1984 1989 1994 1999 2004 2009 2014

History

2009 Baseline Projection

2009 Nominal price projection







Oil price expectations

have jumped considerablyReal 2000 $ per barrel. Refiner acquisition cost of imports

Source: USDA Agricultural Projections to 2018, February 2009; and previous reports

21

14

Table in Box 1. Percent change in value of total and agricultural merchandise trade

Global agricultural trade shows decline in the short run.

Value of Total

Merchandise Trade

Agricultural Trade Value

-31.9 %

-11.7 %

-26.4 %

-32.0 %

-33.7 %

-24.3 %

-53.7 %

-17.3 %

First Quarter

(Jan-March)

2008-2009

-11.8 %

6.1 %

-2.7 %

-3.3 %

-10.0 %

-5.5 %

-15.6 %

-0.4 %

Fourth Quarter

(Oct-Dec)

2007-2008

-32.9 %-9.0 %March, 2009South Korea

-30.0 %-6.1 %January, 2009Mexico

-30.4 %-9.2 %February, 2009USA

Value of Imports

Value of Exports

-19.7 %4.0 %March, 2009China

-10.6 %

-11.4 %

-4.0 %

-9.8 %

Fourth Quarter

(Oct-Dec)

2007-2008

January, 2009

January, 2009

February, 2009

February, 2009

Latest month of

available data

-30.3 %EU

-33.2 %EU

-22.5 %USA

-38.6 %Japan

First Quarter

(Jan-March)

2008-2009

Country/Region

Source: World Trade Atlas, 2009

Percent change in value of ag trade

during economic slowdown

22

The Monthly Value of World Imports Rebounds in

March After Plummeting in Response to the Global

Financial Crisis

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

$B

illio

ns

of

Wo

rld

Im

po

rts

$20

$25

$30

$35

$40

$45

$50

$55

$60

$B

illio

ns

of

Ag

ric

ult

ura

l Im

po

rts

All Goods

All Agriculture

Source: Global Trade Atlas

23

Monthly Value of Imports in Relation to

Stock Market Value

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200J

an

-01

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

$ B

illio

ns

of

All Im

po

rte

d G

oo

ds

$20

$25

$30

$35

$40

$45

$50

$55

$60

$ T

rillio

ns

of

Ma

jor

Sto

ck

Ma

rke

t V

alu

e

All Imported Goods

Value of Major Stock Markets

Source: Global Trade Atlas and World Federation of Exchanges

March

May

24

1,500

2,000

2,500

3,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Production Total use

Million metric tons

World grain & oilseedsTotal production and use

Source: USDA PS&D Database

25

80

100

120

140

160

180

200

220

240

260

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

Production

Yield

Population

Percap production

Area harvested

Total world grain & oilseeds1

Production, yield, area harvested, population & percap production

Exponential trend growth rates:

1970-90 90-08 2009-18

Production 2.4 1.5 1.3

Yields 1.9 1.2 0.8

Area 0.50 0.29 0.49

Population 1.7 1.3 1.1

Per capita 0.61 0.22 0.19

production

Source: Compiled from USDA’s PS&D Database & Baseline Projections

Index: 1970 = 100

1 Total oilseeds = soybeans + rapeseed + sunflowers

26

0

200

400

600

800

1970 1975 1980 1985 1990 1995 2000 2005

0%

5%

10%

15%

20%

25%

30%

35%

40%

Ending stocks

Stocks / Use

Million metric tons Stocks / Use (%)

Total world grain & oilseedsStocks and stocks-to-use ratio

Source: USDA PS&D Database

27

Biofuels production:

Largest producers

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20

04

20

05

20

06

20

07

20

08

20

04

20

05

20

06

20

07

20

08

Argentina

Ukraine & Russia

Brazil

China

Canada

EU

USA

27

Million Gallons

Source: USDA Agricultural Projections to 2017

Ethanol Biodiesel

28

0

2

4

6

8

10

12

14

16

1990 1995 2000 2005 2010 2015

Ethanol

FSI less ethanol 1/

Exports

Feed & residual

U.S. corn use

Billion bushels

1/ Food, seed, and industrial less ethanol.

Source: USDA Agricultural Projections to 2018.

29

Growth in world

wheat and coarse grains use: 1980/81 - 2002/03 vs. 2002/03 - 2007/08

29

Use 1980/81 to 2002/03 2002/03 to 2007/08

MMT % MMT %

Food 160 49 79 44

Feed* 144 44 48 27

U.S. corn for ethanol 27 7 53 29

Total 328 100 180 100

30

U.S. corn used for ethanol

0

20

40

60

80

100

120

140

1980/81 85/86 90/91 95/96 2000/01 05/06 10/11 15/16

Million metric tons

2006 projection

2007 projection

2005 projection

2004 projection

2003 projection

History and projections

from sequential baselines:

2003 - 2009

Source: USDA Agricultural Baseline Projections, various reports.

2009 projection2008 projection

31

Uncertainties

• Energy prices (oil & natural gas)

• Responsiveness to price changes – demand for biofuels vs. petroleum prices

– supply of feed stocks vs. biofuels prices

– costs of feedstock production vs. feedstock prices• Fertilizer (& natural gas), irrigation, farmland

• Additional crop land

• Water availability– manufacturing process

– Increased irrigation

• New technological developments in biofuels industry– manufacturing process

– new crop varieties: (higher yields; more suitable for biofuels)

– new byproducts (with high value?)

• Biofuels policies & funding

32

50

100

150

200

250

300

350

400

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Production Per capita Cons

Meat: Sum of all reporting countries1,2

Production and per capita consumption

Index: 1971 = 100

Exponential trend growth rates

1975-90 90-08 09-18

Production 3.1 2.8 1.6

Population 1.7 1.3 1.1

Per capita 1.4 1.5 0.5

consumption

Source: USDA PS&D data and Agricultural Projections

1 Total meat = beef + pork + chickens & turkeys.

2 Data are not reported in USDA’s PS&D database

for many small countries, therefore data are not

a global total.

33

0

5

10

15

1980 1985 1990 1995 2000 2005 2010 2015

Per Capita Meat Consumption, Reporting Countries 1

Kilograms per capita

Beef

Poultry

Pork

Source: USDA Agricultural Projections to 2018, February 2009

1 Data is not reported in USDA’s PS&D database for many small countries, therefore data are not global averages.

34

60

70

80

90

100

110

120

130

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Value of U.S. dollar declines after 2002;

projected to stabilize 1/

Index values, 2005=100

1/ Real U.S. agricultural trade-weighted dollar exchange rate, using U.S. agricultural export weights,

based on 192 countries.


35

Weather in the future ??

Weather played a major role in recent past

• In 2006– Australia

– Ukraine & Russia

• and 2007– Europe: dry spring; harvest

floods

– SE Europe: drought

– Ukraine & Russia: drought (2nd year)

– USA: late spring freeze

– Canada: hot and dry

– Australia: 2nd year of severe drought

– NW Africa: drought

– Turkey: dry

36

Who will be the importers?

Near term:

– Countries with large

or growing foreign

exchange reserves?

Longer term:

– Food deficit countries

with faster population

growth?

37

Policy responses to rising prices

by selected countriesExports Imports Domestic policies

Country Raised Export Export Reduced Increased Imposed

export volume bans import consumer price

taxes restrictions tariffs subsidies caps .

Export policies:

Argentina x x

Cambodia x

Egypt x

Kazakhstan x

Russia x

Ukraine x

Vietnam x x

Import policies:

Bangladesh x x x

EU x

Mexico x

Morocco x

Mongolia x

Philippines x

Thailand x

38

Policy responses to rising prices

by selected countriesExports Imports Domestic policies

Country Raised Export Export Reduced Increased Imposed

export volume bans import consumer price

taxes restrictions tariffs subsidies caps .

Both export and import policies:

China x x x x

India x x x x x

Indonesia x x x

Malaysia x x

Serbia x x

39

Foreign Exchange Reserves

0

200

400

600

800

1000

1200

1400

1600

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$bn

Emerging Asia ex

China

Source: Oxford Economics / Haver Analytics

Emerging Asia: Foreign exchange reserves

China

OPEC

Russia

Japan

40

Thanks very much and I’m

looking forward to your

comments!

prospects for food commodity prices by sally thompson ...implications for agricultural trade and...

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