prospects for grain prices ulrich koester university of kiel germany
TRANSCRIPT
Prospects for Grain Prices Prospects for Grain Prices
Ulrich Koester
University of Kiel
Germany
2
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Outline
Introduction: Hot topic: Most recent price changes on the wheat market in US$
Historical perspective Causes of price movements Specifics of recent price drop Causes of uncertainties Likely development: Short-, medium and long-
term Summary
3
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
The recent bubble on the wheat and corn market 2007/2008
50
100
150
200
250
300
350
400
450
500
US$/To
n
Wheat Maize
Source: CBOT, SRW prices
4
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Index of real corn and wheat prices, 1866-2008
Note: Prices through 2007 are marketing year averages. The 1866-1908 wheat prices are weighted by production; the 1909-2007 prices are weighted by sales. The 2008 wheat and corn prices are the November 2008 WASDE season average, mid-point of range. Due to lack of another consistent deflator, prices deflated by BLS calendar year CPI for all urban consumers.Sources: Carter, et al. editors (2006), USDA NASS Agricultural Prices, USDA WASDE and BLS “CPI- All Urban Consumers. Quoted in Sumner (2008)
0
50
100
150
200
2501
86
6
18
76
18
86
18
96
19
06
19
16
19
26
19
36
19
46
19
56
19
66
19
76
19
86
19
96
20
06
19
48
=10
0
Corn Wheat
5
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Typical sequences of a spike
Initial production shortfall for some consecutive years
Low stocks as percentage of annual consumption
Significant change in expectations, partly due to misleading projections of the production potential
Change in Government policies Speculation
6
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Causes of the last price hike
Short-fall in production due to bad weather for three consecutive years
Low level of stocks, decline from nearly 25 % in Dec. 2005 to below 18 % in May 2008
Birth of two new fundamental: The market for biofuelThe importance of the oil
Significant uncertainty Speculation
Unknown level of privately held stocks Increase of public held stocks in some countries
7
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
550
600
650
700
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
Production
Consumption
Development of world production and world consumption for wheat
1000 MT
8
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Source: OECD, 2008, Biofuel Support Policies an Economic Assessment. Paris
Impact of biofuel support removal on world commodity prices
9
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Additional specifics of the last spike
Distribution of stocks across exporting and importing countries
Behavior of some governments Inaccurate estimates and projections of short-term
production, consumption and stocks Macroeconomic factors
Financial expansion New financial instruments, also on the futures
markets for grain Devaluation of the US Dollar
10
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Specifics of the dramatic price drop since July
Change in information about short-term production and demand
Financial crisis Return to normal situation or over-
shooting?Overshooting likely
11
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Sources of main uncertainties for projections
Adjustment of the agricultural sector Oil price Macroeconomic effects: Financial and
economic crisis; growth rates and exchange rates
Government policies Biofuel How to cope with a worldwide production shortfall
Investment in the agricultural sector Technological change
12
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Area harvested and production of wheat: Change in percent from 2007/08 to 2008/09 (estimates)
-30
-20
-10
0
10
20
30
China
Former
SovietU
nion
Kazakhstan
EU-27
USA
India
World
%
Area harvested Production
Quelle:USDA
24% 26 %
11.8%
13
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Forecast of short and medium-term price movements
Main determinants Production potential has been mobilized and
is likely to be exploited even at lower prices Demand will increase less than under normal
conditions due to worldwide recession Wheat prices may stay around US$ 140 to
180 per MT for the next three to four years Prices in most national currencies will likely
be below the level of 2006 Future prices on the market in Chicago may
serve as a good judgment given present information.
14
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
CBOT Wheat Futures 2008 to 2011
150,00
160,00
170,00
180,00
190,00
200,00
210,00
220,00
230,00
Dec08
Mar09
May09
Jul09
Sep09
Dec09
Mar10
Jul10
Dec10
Jul11
15
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Long-term projections
Fundamentals play a key role Price of oil
Effect on the supply side Effect on the demand side
Growth of production Investment in agriculture Expansion of crop area Growth of yields
Growth of demand
16
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Selected official long-term projection
OECD/FAO produced in 2007 FAPRI January 2008 Very uncertain, but likely too optimistic
due to misjudgment of capability to adjust and possibly overrating the effect of the oil price
17
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Likely too high
OECD-FAO Projections: Wheat
OECD-FAO Agricultural Outlook, 2008-2017
18
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
OECD Projections: Coarse Grains (2007)
OECD-FAO Agricultural Outlook, 2008-2017
19
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
FAPRI Projections of US Crop Prices from January 2008
Actual wheat prices were 2008 US$ 12.4 per Bushel in March and less than US$ 5 per Bushel in early Dec. 2008
Projections are very uncertain mainly due to uncertainty related to oil prices
20
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Projection 2010 2015 2020 2025 2030
AEO2007 (reference case)
59,21 51,37 53,61 58,07 60,91
AEO2008 (reference case)
74,03 59,85 59,70 64,49 70,45
GII 68,25 61,40 54,80 48,20 45,70
IEA (reference)
59,03 57,30 58,87 60,43 62,00
DB 56,65 60,00 66,00 72,00 80,00
SEER 69,41 58,85 60,83 62,88 65,00
Projections of world oil prices, 2010-2030 (in 2006 US$ per barrel)
Source: : http://www.eia.doe.gov/oiaf/aeo/forecast.html
21
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Summary
•The last bubble on the grain market was larger (in relative terms) than other bubbles in the past.
•The sequence of the bubble was the same as in the past.
•It is likely that the available production potential is significantly higher than assumed in most projections.
• Uncertainty about future prices is extremely high
22
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Summary
It is likely that prices in the short and medium term will not be significantly higher than US$ 150 to 200 per MT in real terms and likely lower than in 2006 in national currencies
Long-term price projection are very uncertain, however, it is unlikely that prices will be above US$ 200MT if prices of oil will develop as projected.
23
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Additional information for discussion
24
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
World Wheat: Ending stocks as percentage of annual consumption
0
5
10
15
20
25
Dec. 2005 May 2006 Nov 07 May 2008 Nov 09
25
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Ending stocks in percent of domestic consumption of wheat
0.00
5.00
10.00
15.00
20.00
25.00
30.00
USA EU-27 Canada India China
%
2006
2007
2008
26
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Wheat prices and share of stocks as percent of annual consumption
US Export FOB Price for Hard Red Winter.Source: USDA, PSD-Datenbank, 2008. IMF, 2008.
27
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Domestic wheat consumption and ending stocks; annual changes in percent 2007 to 2008
-40
-30
-20
-10
0
10
20
30
40
50
%
Ending stocks
Consumption
28
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Production of wheat 2007/2008
USA10%
EU-2721%
Australia4%
China16%
India12%
Russia8%
RoW17%
Ukraine2%
Kazakhstan3%
Argentinia3%
Canada4%
29
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Source: Corn Futures Net Positions from CFCT (COT) reports; Quoted in Carter et al. 2008
The impact of speculation on futures markets
30
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Development of production, consumption, storage and imports of weat. China in 1000 MT
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
70/7
171
/72
72/7
373
/74
74/7
575
/76
76/7
777
/78
78/7
979
/80
80/8
181
/82
82/8
383
/84
84/8
585
/86
86/8
787
/88
88/8
989
/90
90/9
191
/92
92/9
393
/94
94/9
595
/96
96/9
797
/98
98/9
999
/00
00/0
101
/02
02/0
303
/04
04/0
505
/06
06/0
707
/08
Produktion
Verbrauch
Nettoimporte
Lagerhaltung
Source:: USDA, PSD-Datenbank, 2008.
31
Introduction
Historical perspective
Causes of price movements Specifics of price drop
Source of uncertainties
Forecasts
Summary
Accuracy of short-term projections of quantities
ProductionWorld 0.6 3.1 -8.3 6.4 18 8USA 0.1 0.1 -0.2 0.1 11 6
Foreign 0.7 3.1 -8.3 6.4 18 8ExportWorld 3.3 3.7 -14 5.2 18 8USA 4.1 1.3 -3.9 2.7 14 12
Foreign 4.3 3.6 -12.6 5.6 20 6Domestic consumption
World 0.9 4.7 -14.3 11 16 10USA 3.8 1.1 -2.6 3 9 17
Foreign 0.9 4.5 -14.8 8.6 17 9Ending stocks
Welt 3.9 4.9 -11.5 8.1 18 8USA 7.9 1.7 -4.6 3.3 15 11
Foreign 4.1 4.1 -10.3 9.8 18 8
in % in Mio T. in Mio. T. in Jahren (2)
Min und max.deviation
Projectionbelow above
of actual dataAverage deviation
Source:USDA, various years