Crop market behaviour signals that prices have reverted to a long-term downward trend seen before the 2008 spike, United Nations researchers said, casting doubt on the prospects of a rebound in values for now.
Food prices have returned to a pattern of downward movement and lower volatility typical of markets when in a long-term decline, the UN’s food agency, the Food and Agriculture Organisation, said.
“The takeaway message here is that statistically, the most recent shifts in behaviour foresee downward price momentum with lower volatility,” the FAO said.
The agency said that “abundant stocks, lower prices and lower volatility characterise the global food markets today”, also highlighting the role of the depressed oil markets and a stronger dollar in undermining food values.
“That agricultural commodity prices are interconnected with energy prices has long been established,” the organisation said in a report, noting the use of many crops in making biofuels, and the increased mechanisation which has increased farm sector’s fuel dependency.
Meanwhile, global commodity prices “have typically had an inverse relationship with the value of the dollar”, in being dollar denominated, such that a rise in the currency lowering their affordability.
Sugar, dairy price recoveries
The comments came even as the FAO said that food prices had risen by 0.8% in September, the first increase in 18 months.
Dairy prices rose by 5.0%, an increase the agency attributed to “higher quotations from New Zealand, where a substantial reduction in payouts has caused farmers to scale-back production”.
Sugar values rose by 3,2%, lifted by El Nino effects, with “excessive precipitation” curbing output in Brazil, “while in India, the worldґs second-largest producer, below-average monsoon rains impacted negatively on cane yields.
“Given current prospects for Brazil, India and Thailand, the anticipated production deficit in 2015-16 is likely to be wider than originally anticipated,” the FAO added, in comments which follow an increase by analysis group Green Pool on Wednesday to its forecasts for the world shortfall.
Grain stocks downgrade
The FAO also, in a move which might be considered price positive, ditched expectations of a rise in world grain stocks this year, instead seeing a decline, albeit by a modest 4.2m tonnes to 642.0m tonnes.
The downgrade reflected in the main reduced expectations for output of coarse grains, such as barley and corn, for which the forecast was cut by around 5m tonnes “on less buoyant expectations in the US and the European Union, more than offsetting improved prospects in Brazil”.
The estimate for rice output was also cut, reflecting “numerous setbacks” to crops, with the downgrades more than offsetting an upgrade of 6.0m tonnes to a record 734.8m tonnes in the estimate for world wheat production.
“Higher wheat production in China and the EU accounts for most of this month’s upward adjustment.”
‘No price reversal’
Nonetheless, the FAO said that “current market fundamentals do not suggest a reversal in the downward price trends witnessed in most food markets, at least for the time being”.
The agency highlighted that the “appreciation of the dollar against major currencies is showing no sign of abating, underscored by the strength of the US economy relative to elsewhere.
Meanwhile, energy price prospects “remain subdued and, with economic uncertainty in major importing countries such as China, there is little sign of an upturn in global demand prospects”.
The comments come at a time when futures in the likes of wheat and sugar have continued a revival, supported by weather concerns, although they remain relatively low by recent standards.
The FAO added that the shift in market behaviour towards signalling a downtrend was “particularly evident” for more storable commodities, such as cereals.
While dairy prices had shown a sharp decline, this fall appeared part of a “prolonged episode of heightened volatility”.
Sugar, meanwhile, remains “notoriously volatile”.
The FAO said its sugar price index “has lost and gained well over half of its value more than 12 times since 1990”.
* The FAO briefing also forecast a sharp drop in EU wheat exports in 2015-16, by 5m tonnes, “not only because of a decline in this year’s production, but also due to stiffer competition from abundant supplies in the Black Sea region”.
The US Department of Agriculture has forecast a drop of less than 3m tonnes, to 32.5m tonnes.
Among Black Sea exporters, Russian shipments were forecast potentially setting a record high, depending on merchants’ reaction to the export tax, with Ukraine volumes also potentially to hit an all-time high, “given the rapid pace of sales already seen in July and August”.
(Source – http://www.agrimoney.com/news/ag-prices-in-downward-trend-says-un-doubting-revival-chances–8862.html)