what causes the commodity price boom? agri green team seminar on the health check may 15, 2008...

What causes the commodity price boom?What causes the commodity price boom?AGRI Green Team Seminar on the Health CheckAGRI Green Team Seminar on the Health CheckMay 15, 2008May 15, 2008

AGRI-G1Agricultural Policy Analysis and PerspectivesDG for Agriculture and Rural DevelopmentEuropean Commission

AGRI G1 High food prices 2

Is the commodity price boom a new phenomenon?Is the commodity price boom a new phenomenon?

Ag commodity price booms have happened in the recent past – the post-1973 period is the most characteristic, caused by the oil shock– grain market have faced 4 other price surges post-1973– In all previous cases, supply adjustments subsequently lowered prices

In real terms, agricultural prices are below their previous peaks In real terms, agricultural prices are below their previous peaks – energy prices and metals/minerals have long exceeded their post-1973 peaks energy prices and metals/minerals have long exceeded their post-1973 peaks – food and agricultural commodities following a downward trend in real terms food and agricultural commodities following a downward trend in real terms – different agricultural commodities reflecting different very different patterns different agricultural commodities reflecting different very different patterns – some agricultural commodities continue a rather steady pathsome agricultural commodities continue a rather steady path

Agriculture and food are not leading, but following the Agriculture and food are not leading, but following the ""price boomprice boom"" – since early 2004, agriculture and food indexes lag behind other indexessince early 2004, agriculture and food indexes lag behind other indexes– the terms of trade for agriculture have deterioratedthe terms of trade for agriculture have deteriorated– energy and fertiliser costs affect production costs energy and fertiliser costs affect production costs – evidence emerges that land value increases also impact farm assetsevidence emerges that land value increases also impact farm assets– the appreciation of the dollar distorts market signals the appreciation of the dollar distorts market signals


Nominal commodity price indexes (1960-2007)Nominal commodity price indexes (1960-2007)

2000=100 in current prices

0

50

100

150

200

250

300

350

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Agriculture Food Energy Fertilisers Metals/minerals


Nominal food price indexes (1960-2007)Nominal food price indexes (1960-2007)

2000=100 in current prices

0

50

100

150

200

250

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Total Food Grains Fats & Oils Other Food



Ag commodity price booms have happened in the recent past Ag commodity price booms have happened in the recent past – the post-1973 period is the most characteristic, caused by the oil shockthe post-1973 period is the most characteristic, caused by the oil shock– grain market have faced 4 other price surges post-1973grain market have faced 4 other price surges post-1973– In all previous cases, supply adjustments subsequently lowered prices In all previous cases, supply adjustments subsequently lowered prices

In real terms, agricultural prices are below their previous peaks – energy prices and metals/minerals have long exceeded their post-1973 peaks – food and agricultural commodities follow a downward trend in real terms – different agricultural commodities reflect very different patterns – some agricultural commodities continue a rather steady path

Agriculture and food are not leading, but following the Agriculture and food are not leading, but following the ""price boomprice boom"" – since early 2004, agriculture and food indexes lag behind other indexessince early 2004, agriculture and food indexes lag behind other indexes– the terms of trade for agriculture have deterioratedthe terms of trade for agriculture have deteriorated– energy and fertiliser costs affect production costs energy and fertiliser costs affect production costs – evidence emerges that land value increases also impact farm assetsevidence emerges that land value increases also impact farm assets– the appreciation of the dollar distorts market signals the appreciation of the dollar distorts market signals


Real commodity price indexes (1960-2007)Real commodity price indexes (1960-2007)

2000 =100 in constant prices

0

75

150

225

300

375

450

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Agriculture Food Energy Fertilisers Metals/minerals


Real food price indexes (1960-2007)Real food price indexes (1960-2007)

2000=100 in constant prices

0

50

100

150

200

250

300

350

400

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Total Food Grains Fats & Oils Other Food


Nominal crop price evolution (1960-2007)Nominal crop price evolution (1960-2007)

Current $/mt

0

100

200

300

400

500

600

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Wheat Rice Corn Sorghum Soybeans


Real crop price evolution (1960-2007)Real crop price evolution (1960-2007)

Constant 1990 $/mt

0

200

400

600

800

1000

1200

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Wheat Rice Corn Sorghum Soybeans


Nominal food oil price evolution (1960-2007)Nominal food oil price evolution (1960-2007)

Current $/mt

0

300

600

900

1200

1500

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Coconut oil Soybean oil Groundnut oil Palm oil


Real food oil price evolution (1960-2007)Real food oil price evolution (1960-2007)

Constant 1990 $/mt

0

500

1000

1500

2000

2500

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Coconut oil Soybean oil Groundnut oil Palm oil


Nominal sugar/cotton price evolution (1960-2007)Nominal sugar/cotton price evolution (1960-2007)

Current cents/kg

0

50

100

150

200

250

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

0

15

30

45

60

75

Cotton (left axis) Sugar (right axis)


Real sugar/cotton price evolution (1960-2007)Real sugar/cotton price evolution (1960-2007)

Constant 1990 cents/kg

0

100

200

300

400

500

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

0

30

60

90

120

150

Cotton (left axis) Sugar (right axis)


Real crop price Real crop price indexesindexes (1960-2007) (1960-2007)

1990 = 100

0

100

200

300

400

500

600

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Wheat Rice Maize Soybeans


Real food oil price Real food oil price indexesindexes (1960-2007) (1960-2007)

1990 = 100

0

100

200

300

400

500

600

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Soybean oil Palm oil


Real cotton/sugar price Real cotton/sugar price indexesindexes (1960-2007) (1960-2007)1990 = 100

0

100

200

300

400

500

600

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Source: WB

Cotton Sugar



Ag commodity price booms have happened in the recent past Ag commodity price booms have happened in the recent past – the post-1973 period is the most characteristic, caused by the oil shockthe post-1973 period is the most characteristic, caused by the oil shock– grain market have faced 4 other price surges post-1973grain market have faced 4 other price surges post-1973– In all previous cases, supply adjustments subsequently lowered pricesIn all previous cases, supply adjustments subsequently lowered prices

In real terms, agricultural prices are below their previous peaks In real terms, agricultural prices are below their previous peaks – energy prices and metals/minerals have long exceeded their post-1973 peaks energy prices and metals/minerals have long exceeded their post-1973 peaks – food and agricultural commodities following a downward trend in real terms food and agricultural commodities following a downward trend in real terms – different agricultural commodities reflecting different very different patterns different agricultural commodities reflecting different very different patterns – some agricultural commodities continue a rather steady pathsome agricultural commodities continue a rather steady path

Agriculture and food are not leading, but following the "price boom" – since early 2004, agriculture and food indexes lag behind other indexes– the terms of trade for agriculture have deteriorated– energy and fertiliser costs affect production costs – evidence emerges that land value increases also impact farm assets– the appreciation of the dollar distorts market signals


More recent trend of commodity prices (2000-07)More recent trend of commodity prices (2000-07)

( 2000 = 100 )

0

100

200

300

400

500

Jan

-00

Ap

r-00

Jul-

00O

ct-0

0Ja

n-0

1A

pr-

01

Jul-

01O

ct-0

1Ja

n-0

2A

pr-

02Ju

l-02

Oct

-02

Jan

-03

Ap

r-03

Jul-

03O

ct-0

3Ja

n-0

4A

pr-

04Ju

l-04

Oct

-04

Jan

-05

Ap

r-05

Jul-

05O

ct-0

5Ja

n-0

6A

pr-

06

Jul-

06O

ct-0

6Ja

n-0

7A

pr-

07Ju

l-07

Oct

-07

Jan

-08

Energy Fertilizers Agriculture Food


Monthly exchange rates (2000-07)Monthly exchange rates (2000-07)

dollars per currency unit

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

Jan

-00

May

-00

Sep

-00

Jan

-01

May

-01

Sep

-01

Jan

-02

May

-02

Sep

-02

Jan

-03

May

-03

Sep

-03

Jan

-04

May

-04

Sep

-04

Jan

-05

May

-05

Sep

-05

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

… US$ = 1 € ... US$ = 1 CAN $ ... US$ = 1 AUS $ ... US$ = 1 BRA Real


Wheat price and exchange rates (2000-07)Wheat price and exchange rates (2000-07)

price per mt

0

100

200

300

400

500

Jan

-00

May

-00

Sep

-00

Jan

-01

May

-01

Sep

-01

Jan

-02

May

-02

Sep

-02

Jan

-03

May

-03

Sep

-03

Jan

-04

May

-04

Sep

-04

Jan

-05

May

-05

Sep

-05

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

US $ per mt € per mt CAN $ per mt AUS $ per mt


What are the factors behind the recent price hike?

The recent commodity price is partially attributed to demand factors – role of strong economic growth in China/India has been going on for years– clear impact in upward price pressure in certain markets– but why did the highest price increases occur where global demand stagnates?

Supply factors seem to have played a major role in a few marketsSupply factors seem to have played a major role in a few markets– food grains and dairy more affected by adverse weather conditions food grains and dairy more affected by adverse weather conditions – food grain and dairy production already shows signs of recoveryfood grain and dairy production already shows signs of recovery– supply in meat markets has been growing faster than demandsupply in meat markets has been growing faster than demand

Policy factors also played a rolePolicy factors also played a role– biofuel policies had an impact not just on markets but on biofuel policies had an impact not just on markets but on expectationsexpectations – export bans give the wrong signals when markets face supply problemsexport bans give the wrong signals when markets face supply problems

What linkages between various factors?What linkages between various factors?– maize/oilseed complex the most crucial for future market price prospects maize/oilseed complex the most crucial for future market price prospects – supply response to meat demand (including feed demand) seems adequate supply response to meat demand (including feed demand) seems adequate


Demand growth in China, India and the worldDemand growth in China, India and the world

cumulative percentage change 1995-2007

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Wheat Rice Maize Soybean Soymeal Soy oil Palm oil Cotton Pork Poultry

India China World


Share of China and India in world demand growthShare of China and India in world demand growth

cumulative percentage change 1995-2007

-20%

0%

20%

40%

60%

80%

100%

Wheat Rice Maize Soybean Soymeal Soy oil Palm oil Cotton Pork Poultry

India China


World demand in oilseed mealsWorld demand in oilseed meals

mio mt

0

30

60

90

120

150

180

210

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: FAPRI

Soybean meal Rapeseed meal Sunflower meal


World demand in oilseed oilsWorld demand in oilseed oils

mio mt

0

30

60

90

120

150

180

210

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: FAPRI

Soybean oil Rapeseed oil Sunflower oil Palm oil



The recent commodity price is partially attributed to demand factors The recent commodity price is partially attributed to demand factors – role of strong economic growth in China/India has been going on for yearsrole of strong economic growth in China/India has been going on for years– clear impact in upward price pressure in certain marketsclear impact in upward price pressure in certain markets– why have the highest price increases occurred where demand stagnates? why have the highest price increases occurred where demand stagnates?

Supply factors seem to have played a major role in a few markets– food grains and (partly) dairy more affected by adverse weather conditions – food grain and dairy production already shows signs of recovery– supply in meat markets has been growing faster than demand


What linkages between various factors?What linkages between various factors?– maize/oilseed complex the most crucial for future market price prospects maize/oilseed complex the most crucial for future market price prospects – supply response to meat demand (including feed demand) seems adequatesupply response to meat demand (including feed demand) seems adequate


The impact of the Australian droughtsThe impact of the Australian droughts

annual data

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: FAPRI

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Production (left axis - mio mt) Yield (right axis - mt/ha)


Decline in wheat production and ending stocksDecline in wheat production and ending stocks( change in annual avg 2006-07 from annual avg 2002-05)

-25

-20

-15

-10

-5

0

World EU US AUS

mio mt

Production Ending stocks


Is wheat production responding to demand?Is wheat production responding to demand?

mio mt (3 year moving averages)

400

450

500

550

600

650

700

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: FAPRI

0

50

100

150

200

250

300

Ending stocks Production Consumption


Is world maize production responding to demand?Is world maize production responding to demand?


450

500

550

600

650

700

750

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: FAPRI

0

50

100

150

200

250

300



Growth in world maize productionGrowth in world maize production( average 1999/00-2001/02 period compared to average in 2004/05-2006/07 period )

0

75

150

225

300

375

450

525

600

675

750

US EU China Brazil Production (3-year avg)

mio mt

1999/00-2001/02 2004/05-2006/07


Growth in world maize consumptionGrowth in world maize consumption( average 1999/00-2001/02 period compared to average in 2004/05-2006/07 period )

0

75

150

225

300

375

450

525

600

675

750

US EU China Brazil Consumption (3-year avg)

mio mt

1999/00-2001/02 2004/05-2006/07


US maize production response to demandUS maize production response to demand


0

50

100

150

200

250

300

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: FAPRI



China increases maize production but lowers stocks China increases maize production but lowers stocks


0

50

100

150

200

250

300

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: FAPRI






Policy factors also played a role– biofuel policies had an ceratin impact in maize and vegetable oil markets – export restrictions give the wrong signals when markets face supply problems

What linkages between various factors?What linkages between various factors?– maize/oilseed complex the most crucial for future market price prospects maize/oilseed complex the most crucial for future market price prospects – supply response to meat demand (including feed demand) seems adequatesupply response to meat demand (including feed demand) seems adequate


Developments in the US maize marketDevelopments in the US maize market( change in 2001/02-06/07 period compared to change in 1996/97-2001/02 period )

-10

0

10

20

30

40

50

60

Feed demand Food/Seed/Ind Ethanol Exports Production (3-year avg)

mio mt

2001/1996 2006/2001


Developments in vegetable oil marketsDevelopments in vegetable oil markets( change in annual average 2001-07 from annual average 1996-01)

-5

0

5

10

15

20

25

30

World EU US Others

mio mt

Food Demand Biodiesel Demand






What linkages between various factors?– maize/oilseed complex the most crucial for future market price prospects – supply response to meat demand (including feed demand) seems adequate


Annual shifts in US maize/soybeans areaAnnual shifts in US maize/soybeans area

0

5

10

15

20

25

30

35

40

2004/05 2005/06 2006/07 2007/08 2008/09 (USDA est)

mio ha

Maize Soybeans


What impact from additional meat production?What impact from additional meat production?( annual world change 2003-07 )

0

5

10

15

20

25

30

35

40

Approximate implied increase in feed demand Increase in maize/soymeal production

mio mt

Beef (in grain) Pork (in grain) Poultry (in grain) Maize for feed Soybean meal

what causes the commodity price boom? agri green team seminar on the health check may 15, 2008...

Documents

agri g1high food prices

world slide

demand slide

real food price indexes

nominal food price indexes

real food oil price

real food oil price

world maize production