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
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
1
?
Spikes in food commodity prices:
Will this time be any different?
Index: January 2002 = 100
550
500
Corn
Soybeans
Wheat
Rice
Food commodity index
450
400
350
300
250
200
150
100
50
0
Jan-70
2
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Source: International Monetary Fund: International Financial Statistics
Food commodity prices since January 2002:
Up 130 %, then down 1/3
Index: January 2002 = 100
250
200
Food commodity price index
150
100
50
3
Source: International Monetary Fund: International Financial Statistics
2008
M1
2006
M1
2004
M1
2002
M1
2000
M1
1998
M1
1996
M1
1994
M1
1992
M1
1990
M1
1988
M1
1986
M1
1984
M1
1982
M1
1980
M1
0
Nominal Crop Price Index
Weighted average of 4 crops (wheat, soybeans, corn & rice) 1/
Index: January 2002 = 100
December 2008
June 2008
300
June 2007
200
1 year:
prices rose
80% again
100
9 months:
prices fell
40%
5+ years:
prices rose 80%
0
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
1/ IMF monthly prices weighted by world exports.
4
Source of data for nominal prices and weights: International Monetary Fund
Jan 09
Prices of many commodities
rose even more
Index: January 2002 = 100
700
650
600
550
500
450
400
350
300
250
200
150
100
50
0
1992M1
5
+ 585 %
Crude oil
Average of all comodities
Food commodity index
+ 330 %
+ 130 %
1996M1
2000M1
2004M1
2008M1
Source: International Monetary Fund: International Financial Statistics
Food commodity prices:
Indices for selected crops and total food
Index: January 2002 = 100
550
Corn
Soybeans
Wheat
Rice
Food commodity index
500
450
400
350
300
250
200
150
100
6
Source: International Monetary Fund: International Financial Statistics
2009M7
2009M4
Jan-09
2008M10
2008M7
2008M4
8-Jan
2007M10
2007M7
2007M4
0
2007M1
50
Crop price increases: real vs. nominal
Weighted average of 4 crops (wheat, soybeans, corn & rice) 1/
Index: January 2002 = 100
700
163%
600
500
400
226%
Real prices
300
200
178%
202%
100
Nominal prices
0
Jan 1970
Jan 75
Jan 80
Jan 85
Jan 90
Jan 95
Jan 2000
Jan 05
1/ IMF monthly prices weighted by world exports.
7
Source of data for nominal prices and weights: International Monetary Fund
Crop and meat prices (nominal)
Index: January 2002 = 100
300
Weighted average of 4 crops (wheat, soybeans, corn & rice) 1/
Simple average of 3 meats (beef, pork & chicken)
200
100
0
Jan 80
Jan 85
Jan 90
Jan 95
Jan 2000
Jan 05
1/ IMF monthly prices weighted by world exports.
8
Source of data for nominal prices and weights: International Monetary Fund
Factors contributing to higher
food commodity prices
1996
1998
2000
Increasing population
+
2002
2004
2006
2007
2008
Strong growth in demand, based on:
Strong economic growth + Rising per capita meat consumption
Slowing growth in agricultural production
Declining demand for stocks of food commodities
Escalating crude oil price
Rapid expansion of biofuels production
Dollar devaluation
Rising farm production costs
Adverse weather
Large foreign exchange reserves
Demand factors in yellow
Supply factors in green
Aggressive
purchases by
importers
Exporter policies
Importer policies
9
Factors that may influence
future ag prices
•
Nearer Term
–
–
–
–
–
–
–
–
•
Intermediate 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)
Biofuels production (Role of policies and profitability)
Consumption patterns (Continued increase in per capita meat consumption?)
Longer Term
–
Technology advancements
•
–
Natural resource constraints
•
•
–
10
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
•
–
Continued slowing of growth in productivity? R&D investments. Acceptance of GMO products.
Impact of temperature, precip, and growing season changes on cropping patterns & productivity.
Potential revisions to projected population growth
Factors contributing to changes in
food commodity prices
Temporary
factors:
 Adverse
weather
 Trade policies
by exporters
and importers
 Aggressive
buying by
importers
Continuing upward pressure on prices
Demand factors:
Supply factors:
 Economic
growth in many
developing
countries
 Population growth
in developing
countries
 Increasing per
capita meat
consumption
 Continued
biofuels
production
11
 Energy
prices
 Ag
production
costs
Uncertain
future impact:
 Value of dollar
 Role of large
foreign exchange
reserves
 Slowing
growth in
total crop
production
Supply factors
Demand factors
USDA Baseline
•
•
•
•
12
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)
U.S. commodity prices: soybeans, wheat, corn & rice
History, current year, & projections
$ per bushel (per cwt for rice)
16
14
Projections made in November 2008
Rice
12
10
Soybeans
8
Wheat
6
4
Corn
2
0
1980/81
13
1985
1990
1995
2000
2005
2010
Source: USDA Agricultural Baseline Projections to 2018, February 2009.
2015
Livestock Prices
$ per metric ton, Nominal, U.S. markets
Beef cattle:
Choice steers, Nebraska
2500
2250
2000
Broilers:
12-city market price
1750
1500
1250
Hogs:
National base
1000
750
500
1990
14
1995
2000
2005
2010
Source: USDA Agricultural Projections to 2018, February 2009
2015
GDP growth slows in 2008 & 2009 1/
Percent
9
Africa
Developing Asia
6
3
World
0
Latin America
OECD Countries
-3
Former Soviet Union
-6
1996
2001
2006
2011
2016
1/ Projections based on assumptions made in October, 2008
15
Source: USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.
GDP growth down in 2008-101/
15
Annual percent change
10
Developing Asia
World
5
OECD Countries
0
Latin America
Africa
-5
-10
-15
FSU
-20
1990
1995
2000
2005
2010
Source: ERS International Macroeconomic Data Set, 2009.
1/ Data for 2008 is preliminary while data for 2009 are estimates based on partial year.
16
2015
2020
GDP growth slows even in China
and India
14
12
China
Annual percent change
10
8
6
4
India
USA
2
0
EU27
-2
-4
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
-6
Source: ERS International Macroeconomic Data Set, 2009.
17
Population growth continues to slow
Percent
Middle
East
1981-90
Africa
1991-2000
3
2001-08
2009-18
2
1
World
Developing
countries
Latin
America
Asia
United States
Former
Soviet
Union
0
Source: U.S. Department of Commerce, U.S. Census Bureau and U.S. Department of Agriculture,
Economic Research Service.
18
USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.
U.S. crude oil prices
Dollars per barrel
100
90
Refiner acquisition cost,
crude oil imports
80
70
60
50
40
Refiner acquisition cost,
adjusted for inflation
30
20
10
0
1990
19
1995
2000
2005
2010
2015
Source: USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.
Oil price expectations
have jumped considerably
Real 2000 $ per barrel. Refiner acquisition cost of imports
120
History
2009 Baseline Projection
100
2009 Nominal price projection
2008 Baseline Projection
80
2007 Baseline Projection
2006 Baseline Projection
60
2005 Baseline Projection
2004 Baseline Projection
2003 Baseline Projection
40
20
0
1974
20
1979
1984
1989
1994
1999
2004
2009
2014
Source: USDA Agricultural Projections to 2018, February 2009; and previous reports
Percent change in value of ag trade
during economic slowdown
Table in Box 1. Percent change in value of total and agricultural mer
Global agricultural trade shows decline in the short run.
Country/Region
Latest month of
available data
Agricultural Trade Value
M
Fourth Quarter
(Oct-Dec)
2007-2008
First Quarter
(Jan-March)
2008-2009
Fourth
(Oct2007-
-0.4 %
-17.3 %
4.0
Value of Exports
China
March, 2009
Japan
February, 2009
-15.6 %
-53.7 %
-9.8
USA
February, 2009
-5.5 %
-24.3 %
-4.0
-10.0 %
-33.7 %
EU
January, 2009
-11.
Value of Imports
South Korea
March, 2009
-3.3 %
-32.0 %
-9.0
Mexico
January, 2009
-2.7 %
-26.4 %
-6.1
USA
February, 2009
6.1 %
-11.7 %
-9.2
EU
January, 2009
-11.8 %
-31.9 %
Source: World Trade Atlas, 2009
21
-10.
$1,200
$60
$1,100
$55
$1,000
$900
All Goods
All Agriculture
$45
$800
$700
$40
$600
$35
$500
$30
$400
$25
$300
$20
$200
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
22
$50
Source: Global Trade Atlas
$Billions of Agricultural Imports
$Billions of World Imports
The Monthly Value of World Imports Rebounds in
March After Plummeting in Response to the Global
Financial Crisis
$60
$ Billions of All Imported Goods
$1,200
$1,100
$55
All Imported Goods
$1,000
Value of Major Stock Markets
$50
$900
$45
$800
$700
March
$600
$35
$500
May
$30
$400
$25
$300
$20
Source: Global Trade Atlas and World Federation of Exchanges
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
$200
23
$40
$ Trillions of Major Stock Market Value
Monthly Value of Imports in Relation to
Stock Market Value
World grain & oilseeds
Total production and use
Million metric tons
3,000
Production
Total use
2,500
2,000
1,500
1990
24
1992
1994
1996
1998
2000
2002
Source: USDA PS&D Database
2004
2006
2008
Total world grain & oilseeds1
Production, yield, area harvested, population & percap production
Index: 1970 = 100
260
Exponential trend growth rates:
240
220
Production
Yields
Area
Population
Per capita
production
1970-90
2.4
1.9
0.50
90-08
1.5
1.2
0.29
1.7
0.61
1.3
0.22
2009-18
1.3
0.8
0.49
1.1
0.19
200
180
160
140
120
100
Production
Yield
Population
1 Total
25
oilseeds = soybeans + rapeseed + sunflowers
Percap production
Area harvested
Source: Compiled from USDA’s PS&D Database & Baseline Projections
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
80
Total world grain & oilseeds
Stocks and stocks-to-use ratio
Million metric tons
Stocks / Use (%)
800
40%
Ending stocks
35%
Stocks / Use
600
30%
25%
400
20%
15%
200
10%
5%
0
1970
26
0%
1975
1980
1985
1990
1995
Source: USDA PS&D Database
2000
2005
Biofuels production:
Largest producers
Million Gallons
Ethanol
18,000
Biodiesel
Argentina
16,000
14,000
Ukraine & Russia
12,000
Brazil
10,000
China
8,000
6,000
Canada
4,000
EU
2,000
USA
27
27
Source: USDA Agricultural Projections to 2017
2008
2007
2006
2005
2004
2008
2007
2006
2005
2004
0
U.S. corn use
Billion bushels
16
14
Ethanol
12
10
FSI less ethanol 1/
8
6
Exports
4
Feed & residual
2
0
1990
1995
2000
2005
2010
2015
1/ Food, seed, and industrial less ethanol.
28
Source: USDA Agricultural Projections to 2018.
Growth in world
wheat and coarse grains use:
1980/81 - 2002/03 vs. 2002/03 - 2007/08
1980/81 to 2002/03
Use
29
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
29
U.S. corn used for ethanol
Million metric tons
140
2009 projection
2008 projection
120
100
History and projections
from sequential baselines:
2003 - 2009
2007 projection
80
2006 projection
60
2005 projection
40
2004 projection
2003 projection
20
0
1980/81
30
85/86
90/91
95/96
2000/01
05/06
10/11
15/16
Source: USDA Agricultural Baseline Projections, various reports.
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?)
•
31
Biofuels policies & funding
Meat: Sum of all reporting countries1,2
Production and per capita consumption
Index: 1971 = 100
Exponential trend growth rates
400
350
1975-90
Production
3.1
Population
1.7
Per capita
1.4
consumption
90-08
2.8
1.3
1.5
09-18
1.6
1.1
0.5
300
250
200
150
100
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.
32
Production
Source: USDA PS&D data and Agricultural Projections
Per capita Cons
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
50
Per Capita Meat Consumption,
Reporting Countries 1
Kilograms per capita
Pork
15
Poultry
10
Beef
5
0
1980
1985
1990
1995
2000
2005
2010
2015
1 Data is not reported in USDA’s PS&D database for many small countries, therefore data are not global averages.
33
Source: USDA Agricultural Projections to 2018, February 2009
Value of U.S. dollar declines after 2002;
projected to stabilize 1/
Index values, 2005=100
130
120
110
100
90
80
70
60
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
1/ Real U.S. agricultural trade-weighted dollar exchange rate, using U.S. agricultural export weights,
based on 192 countries.
34
Source: USDA Agricultural Projections to 2018, February 2009. USDA, Economic Research Service.
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
35
Who will be the importers?
Near term:
– Countries with large
or growing foreign
exchange reserves?
Longer term:
– Food deficit countries
with faster population
growth?
36
Policy responses to rising prices
by selected countries
Country
Export policies:
Argentina
Cambodia
Egypt
Kazakhstan
Russia
Ukraine
Vietnam
Import policies:
Bangladesh
EU
Mexico
Morocco
Mongolia
Philippines
Thailand
37
Raised
export
taxes
Exports
Export
volume
restrictions
x
x
Export
bans
Imports
Reduced
import
tariffs
Domestic policies
Increased
Imposed
consumer
price
subsidies
caps
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
.
Policy responses to rising prices
by selected countries
Exports
Country
Raised
export
taxes
Export
volume
restrictions
Both export and import policies:
China
x
x
India
x
x
Indonesia
x
Malaysia
Serbia
38
Export
bans
x
Imports
Domestic policies
Reduced
import
tariffs
Increased
consumer
subsidies
Imposed
price
caps
x
x
x
x
x
x
x
x
x
x
.
Foreign Exchange Reserves
Emerging Asia: Foreign exchange reserves
$bn
1600
China
1400
Emerging Asia ex
China
1200
1000
800
600
400
Japan
200
OPEC
Russia
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Oxford Economics / Haver Analytics
39
Thanks very much and I’m
looking forward to your
comments!
40