Agricultural Commodity
Markets and Trade: Price
Spikes or Trends?
Alexander Sarris
Director, Trade and Markets Division
Food and Agriculture Organization of the
United Nations
Presentation at the Conference on “The Food Crisis” of
2008: Lessons for the Future”
held at Imperial College, Wye Campus, London,
October 28, 2008
Plan of Presentation
• Recent agricultural price developments in
perspective and volatility trends
• Overview of factors underlying recent
commodity price hikes
• Factors affecting price volatility
• The global financial crisis and food
commodity prices
• Medium term projections and outlook for
basic foods
Almost all basic food commodities have seen their
international prices rise significantly over the past two
years
(Commodity price indices: 1998-2000=100)
350
300
250
200
150
100
50
0
2008
2007
2006
OILS
2005
2004
2003
CEREALS
2002
2001
2000
1999
DAIRY
1998
1997
1996
1995
1994
1993
1992
1991
1990
MEAT
SUGAR
But prices for tropical export crops have
lagged behind
Prices for selected cereals and tropical export products
450
400
350
300
250
200
150
100
50
Wheat
Rice
Cocoa
Coffee
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Recently basic food prices have declined but
still remain much above their 2005-6 levels
The recent food price declines have been largest in
cereals, oils and fats and dairy but not so for sugar and
meat
Rice export prices have declined dramatically
after their peaks in early 2008
Real prices of bulk food commodities have tended to
decrease but since mid 1980s tendency seems to have
stopped
Real Prices: Bulk Commodities (1957-2008)
1400
1200
Wheat
Rice
1000
Maize
Soybeans
800
600
400
200
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
0
Real prices of vegetable oils have tended to decrease
but since mid 1980s tendency seems to have stopped
Real Prices: Vegetable Oils (1957-2008)
2500
2000
1500
1000
500
2008
2005
2002
1999
1996
1993
Rapeseed Oil
1990
1987
1984
1978
1975
1972
1969
1966
1963
1960
1957
0
1981
Palm Oil
Soybean Oil
Real prices of livestock commodities have tended to
decrease albeit at slowing pace since mid 1980s
Real Prices: Livestock Commodities (1957-2008)
300
Butter
Pigmeat
250
Beef
Poultry
200
150
100
50
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
0
Real prices of sugar and beverages have tended to
decrease but since mid 1980s tendency seems to have
stopped
Real Prices: Sugar & Beverages (1957-2008)
1800
Tea
Cocoa
Coffee
Sugar
1600
1400
1200
1000
800
600
400
200
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
0
Causes of recent high commodity prices
•
Strong growth in demand
– sustained historically high economic growth world wide
– bio-fuel feedstock demand,
• particularly for maize and vegetable oils
– stronger currencies/ weak USD
•
Constrained supply
– high energy related input costs... crude oil up since 2000
– repeated yield shortfalls in key areas – climate change?
•
Low commodity stocks
– increased speculation/ demand to rebuild
•
Increased activity on commodity exchange
– higher volatility
•
Policies and policy changes
– tariff liberalization by importers
– decoupling of subsidies, reduction in export subsidies, lower public
stocks
– increased use of export taxes/ bans
– biofuel subsidies/tariffs/tax credits etc, changing mandates etc
Historic volatilities of international prices seem to
increase with price spikes for grains
W h e a t
6 0 0
5 0 0
4 0 0
v o la t i li t y
n o m in a l p ric e s
3 0 0
2 0 0
1 0 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
M a iz e
4 0 0
3 5 0
3 0 0
2 5 0
v o la t i li t y
n o m in a l p ric e s
2 0 0
1 5 0
1 0 0
5 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
Historic volatilities of international prices seem to increase with
price spikes for rice and soybeans
R ic e
6 0 0
5 0 0
4 0 0
v o la t i li t y
n o m in a l p ric e s
3 0 0
2 0 0
1 0 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
S o y b e a n s
8 0 0
7 0 0
6 0 0
5 0 0
v o la t i li t y
n o m in a l p ric e s
4 0 0
3 0 0
2 0 0
1 0 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
Historic volatilities of international prices seem not to follow price
trends for meats
P ig
M e a t
7 0 0
6 0 0
5 0 0
4 0 0
v o la t i li t y
3 0 0
n o m in a l p ric e s
2 0 0
1 0 0
2005
2000
1995
1990
1985
1980
0
P o u lt r y
1 8 0
1 6 0
1 4 0
1 2 0
1 0 0
v o la t i li t y
n o m in a l p ric e s
8 0
6 0
4 0
2 0
2005
2000
1995
1990
1985
1980
0
B e e f
4 0 0
3 5 0
3 0 0
2 5 0
v o la t i li t y
2 0 0
n o m in a l p ric e s
1 5 0
1 0 0
5 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
Historic volatilities of international prices seem to increase with
price spikes for tropical beverages and sugar
C
o c o a
4 5 0
4 0 0
3 5 0
3 0 0
2 5 0
v o la t i li t y
n o m i n a l p r i c e s
2 0 0
1 5 0
1 0 0
5 0
C
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
o f f e e
9
0
0
8
0
0
7
0
0
6
0
0
5
0
0
v o la t i li t y
4
0
0
n o m
3
0
0
2
0
0
1
0
0
i n a l p r i c e s
S
2004
1999
1994
1989
1984
1979
1974
1969
1964
0
u g a r
7 0 0
6 0 0
5 0 0
4 0 0
v o la t i li t y
n o m i n a l p r i c e s
3 0 0
2 0 0
1 0 0
2007
2002
1997
1992
1987
1982
1977
1972
1967
1962
1957
0
Historic volatilities of spot prices in organized markets
(CBOT) seem to be increasing over time
H is t o r ic y e a r ly v o la t ilit y
W h e a t , C o r n a n d R ic e
3 5
3 0
Average
2 5
W h e a t
2 0
C o rn
1 5
R ic e
1 0
5
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
H is t o r ic y e a r ly v o la t ilit y
S o y b e a n s , S o y o il a n d S o y m e a l
3 5
3 0
S o yb e a n s
2 0
S o y o il
1 5
S o ym e a l
1 0
5
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
1988
Average
2 5
Similarly implied volatilities estimated from options in
organized markets (CBOT) seem to be growing
Wheat
Maize
Soybeans
50%
40%
30%
20%
10%
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
0%
Factors affecting current and future
price volatility
– Production variability and trends
– Stocks
– Financial speculation
– Exchange rates
– Oil prices and biofuel production
– Trade policies and price transmission
– Other factors
Production does not seem to have become more
variable for wheat and maize
P ro d . C o e f. V a r. W h e a t
0 .4 0 0
0 .3 5 0
0 .3 0 0
A fri c a
0 .2 5 0
A m e ri c a
A si a
0 .2 0 0
E u ro p e
O ce a n ia
0 .1 5 0
W o rl d
0 .1 0 0
0 .0 5 0
0 .0 0 0
1 9 6 1 -6 9
1 9 7 0 -7 9
1 9 8 0 -8 9
1 9 9 0 -9 9
2 0 0 0 -0 6
P r o d . C o e f. V a r . M a iz e
0 .2 5 0
0 .2 0 0
A fr i c a
A m e ric a
0 .1 5 0
A si a
Eu ro p e
0 .1 0 0
O ce a n ia
W o rld
0 .0 5 0
0 .0 0 0
1 9 6 1 -6 9
1 9 7 0 -7 9
1 9 8 0 -8 9
1 9 9 0 -9 9
2 0 0 0 -0 6
Production does not seem to have become more
variable for rice and soybeans
P r o d . C o e f. V a r . R ic e
0 .8 0 0
0 .7 0 0
0 .6 0 0
A fr i c a
0 .5 0 0
A m e rica
A si a
0 .4 0 0
Eu ro p e
O ce a n ia
0 .3 0 0
W o rld
0 .2 0 0
0 .1 0 0
0 .0 0 0
1 9 6 1 -6 9
1 9 7 0 -7 9
1 9 8 0 -8 9
1 9 9 0 -9 9
2 0 0 0 -0 6
P ro d . C o e ff. V a r. S o y b e a n s
0 .7 0 0
0 .6 0 0
0 .5 0 0
A fr i c a
0 .4 0 0
A m e rica
0 .3 0 0
Eu ro p e
0 .2 0 0
W o rld
A si a
O ce a n ia
0 .1 0 0
0 .0 0 0
1 9 6 1 -6 9
1 9 7 0 -7 9
1 9 8 0 -8 9
1 9 9 0 -9 9
2 0 0 0 -0 6
Food cereals stock levels seem to be very
low by historical standards
250
Index 1989/90=100
200
Correlation coefficients:
Price with global stock-to-use ratio :
r = - 0.65
Price with global stock-to-use ratio exc China :
150
r = - 0.49
Price with exporters' stock-to-disappearance ratio: r = - 0.47
100
50
0
2007
Stocks-to-disappearance ratio for major exporters
FAO Cereals Price Index (July/June)
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Global stocks-to-use ratio
Global stocks-to-use ratio exc China
19
79
19 /80
80
/
19 81
81
19 /82
82
/
19 83
83
/
19 84
84
19 /85
85
19 /86
86
19 /87
87
19 /88
88
19 /89
89
19 /90
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
20 /01
01
20 /02
02
/
20 03
03
/
20 04
04
20 /05
05
/
20 06
06
/
20 07
07
/0
8
Wheat Ending Stocks and Stocksto-Use Ratio 1979/80-2007/08
260
Million tons
Closing Stocks
Percent
240
220
140
46
Stocks as % of Utilization 1/
42
38
200
34
30
180
26
160
22
18
120
14
100
10
19
79
/
19 80
80
/
19 81
81
/
19 82
82
19 /83
83
/
19 84
84
/
19 85
85
19 /86
86
/
19 87
87
/
19 88
88
/
19 89
89
/
19 90
90
19 /91
91
/
19 92
92
/
19 93
93
/
19 94
94
/
19 95
95
19 /96
96
/
19 97
97
/
19 98
98
19 /99
99
/
20 00
00
/
20 01
01
/
20 02
02
/
20 03
03
20 /04
04
/
20 05
05
/
20 06
06
20 /07
07
/0
8
Maize Ending Stocks and Stocksto-Use Ratio 1979/80-2007/08
260
Million tons
Closing Stocks
Percent
Stocks as % of Utilization 1/
240
220
120
42
38
34
200
30
180
160
26
140
22
18
100
14
80
10
Rice Ending Stocks and Stocks-to-Use
Ratio 1999/00-2008/09
Financial speculation seems to have increased in organized
exchanges. Share of commercial and non-commercial traders in
total open interests in selected futures markets - February 2005
vs. February 2008
a
100
2008
2005
b
c
Commercial
2005
2008
d commercial
e
Non
2005
f
g
2008
200
2005
80
17
43
28
42
20
34
46
60
35
40
62
20
46
55
60
49
56
43
44
0
Corn
Wheat
Soybean
Sugar
Recent USD exchange rates
have been quite variable
07
20
05
20
03
20
01
20
99
19
97
EU
China
India
Philippines
S Africa
Brazil
19
19
95
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Indices = 1 in 2000
Impact on commodity prices of a 1 % USD depreciation
against all currencies
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
Beef
Poultry
Cheese SMP WMP
Butter
Veg. oil
Oilmeal
Pork
Wheat
Rice
Oilseeds
Maize
The impacts on prices and markets
Price effects of biofuel demand for feedstocks
An additional 10 million tonnes of …
Corresponding
energy [biofuels]
Sugar
Maize
Sugar and
Maize
Soybeans and
Maize
Sugar, Maize
and
Soybeans
0.195 EJ
0.087 EJ
0.282 EJ
0.167 EJ
0.349 EJ
Commodity
… used for biofuels
would change international prices (percent) in the long-run by :
Sugar
+9.8
+1.1
+11.3
+2.3
+13.8
Maize
+0.4
+2.8
+3.4
+4.0
+4.2
Vegetable oils
+0.3
+0.2
+0.2
+7.6
+7.8
Protein
+0.4
-1.2
-1.2
-8.1
-7.6
Wheat
+0.4
+0.6
+0.9
+1.8
+2.0
Rice
+0.5
+1.0
+1.2
+1.1
+1.4
Beef
+0.0
+0.2
+0.2
+0.4
+0.4
Poultry
+0.0
-0.4
-0.4
-2.1
-2.0
Source: FAO AT2030 simulation results (2005)
Share of ethanol in gasoline
(energy basis)
56.6%
60%
50%
40%
32.3%
2017
nd
ai
la
Th
di
a
5.6%
11.7%
1.3%
1.7%
In
in
Ch
a
Co
lu
m
bi
az
Br
Ta
Avg.2005/07
4.0%
1.7%
a
5.0%
3.3%
il
2.5%
0.0%
nz
a
r ic
ut
h
st
Af
ra
a
lia
7)
(2
1.9%
0.0%
ni
a
3.3%
0.2%
4.9%
1.0%
Au
Ca
na
da
4.1%
1.3%
So
Un
i te
d
St
at
es
6.0%
2.6%
EU
30%
20%
10%
0%
Short term policy reactions have contributed to market
instability
Policy actions to address high food prices
(by region, in sample of 77 countries)
120%
100%
%of countriescarryingout policyaction
80%
60%
40%
20%
0%
Africa
East Asia
Europe and Central
Asia
Latin America and
Caribbean
Middle East and
North Africa
South Asia
Reduce taxes on foodgrains
44%
80%
33%
44%
60%
78%
Increase supply using foodgrain stocks
22%
80%
0%
0%
60%
56%
Export restrictions
19%
40%
33%
19%
20%
44%
Price controls / consumer subsidies
33%
80%
67%
50%
100%
67%
None
22%
0%
0%
31%
0%
11%
Geographical region
Limited price transmission has also contributed
to world price instability. Percentage change in
real rice prices in Asia, Q4 2003 to Q4 2007
RICE
Bangladesh
India
Indonesia
Philippines
Thailand
China
Viet Nam
PW (US$)
PW (LC)
PD (LC)
56
56
56
56
56
48
39
55
25
36
10
30
34
25
25
5
3
30
30
3
Notes: Data for China compare 2003 and 2007 (annual). Data for Viet Nam
compare 2003 and 2006 (annual).
Prices US yellow maize in USA and white maize in the Republic of
South Africa (real Republic of South Africa rand)
Chile domestic wholesale and world wheat prices, inflation
adjusted, 2003 to 2007
What next?
Given the depth of the shortages:
it will take some time for food stocks to be replenished,
especially if unusual weather events continue to occur
over the next few seasons
biofuel demand is likely to be important for some time, if
petroleum prices continue increase and policies supporting
biofuels sector are maintained
more energy efficient new generation biofuels that do not
compete with land resources for food production do not
become widely available commercially for many more years
The impact of future crude oil prices is critical
to commodity prices
12
Crude oil
Biodiesel
Ethanol
Maize
Sugar
Molasses
Veg oil
10
8
6
4
2
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
0
...impact of 10% increase in crude oil
prices
Nominal commodity prices have risen to
record highs and will likely stay high
1200
1000
Wheat
Rice
Maize
Oilseed
Veg Oil
Oilmeal
800
600
400
200
17
20
13
20
09
20
05
20
01
20
97
19
93
19
89
19
19
85
0
Global stock to use ratios have fallen
to historic lows and may stay low
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
16
20
13
20
10
20
07
20
04
20
01
20
98
19
19
95
Wheat
Coarse grain
Rice
Conclusions: Main factors that will affect
future agricultural commodity price
volatility
•
•
•
•
•
Stock replenishment rates
Petroleum prices
Biofuel policies and technology prospects
Developments in USD exchange rates
Developments in financial markets and
speculative fund positions
• New investments in agricultural production
• Overall: considerable uncertainty and likely
volatility
The global financial crisis and
commodity markets: Demand factors
i)
Slower rates of GDP growth in OECD economies,
but sustained rates of growth in East Asia
economies. Likely downward pressure on prices
ii) Reduced oil prices will lower agricultural production
costs and may dampen demands for biofuel
feedstocks
iii) Portfolio reallocations of international commodity
funds and other financial funds, away from
commodities, may put downward pressure on
prices in the short run
iv) Exchange rate volatility
v) Return to market fundamentals?
The global financial crisis and
commodity markets: Supply factors
• With commodity prices declining
production incentives will be dampened
and supply response will be smaller
• Freight rates have declined and this may
lower import costs
• Falling prices may present an opportunity
to replenish stocks, but since stockholding
is (among others) a function of future price
anticipations will this happen?
Impact of high prices and global
volatility on developing countries
• Increase in world agricultural commodity prices
may “double squeeze” low-income importers of
food and oil, but may benefit agricultural exporters
• How do recent price developments affect poor
agriculture based economies in the aggregate and
at the household levels?
• Developing countries have structural features
quite different from those of developed
economies. How do these affect the impact of
world price developments?
• What is the role of trade and other structural
policies in adjusting to global price developments?
• Is domestic risk likely to increase in developing
countries?
Medium term outlook. Population
growth rates are decreasing.
2.5
2.0
1.5
1998 - 2007
2008 - 2017
1.0
0.5
World
Oceania
Developed
North
America
Latin
America
and
Carabbean
Europe
Asia and
Pacific
Africa
0.0
0
Russia
EU15
USA
Japan
Korea
Australia
Brazil
China
India
Vietnam
Thailand
Philippines
Malaysia
Indonesia
GDP Growth
expected to be high in Asia
12
10
8
6
4
2
2005-2007
2008-2011
2008-2017
World demand growth for food commodities
slows: income sensitive products grow most
6.0%
5.0%
4.0%
1998-2007
2008-2017
3.0%
2.0%
1.0%
Bo
v
rs
e
G
ra
in
s
in
e
m
ea
t
Pi
gm
ea
t
Po
ul
tr
O
y
vi
ne
V
m
eg
ea
et
t
ab
le
oi
ls
t
he
a
W
C
oa
-1.0%
e
0.0%
R
ic
Average annual growth
7.0%
Growth in food demand in 2008-17 much
higher in developing countries
Annual average growth
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
at ice ains eat eat eat ltry ese tter der der eds oils eal oils
e
h R r m m m ou he u ow ow lse le ilm le
W
e G vine vine Pig P C Bilk p lk P Oi etab O etab
s
ar Bo O
m Mi
eg
eg
o
e
V
V
C
l
ho Skim
W
Developed
Developing
Supply: Moderate rate of growth
• Real prices firmness continue over medium term
– Moderate level of technical progress (crop yield growth
continues, livestock revolution)
– Further trade liberalization unlikely to reverse the price
trend
• Competition in export-supply is increasing
– Low cost, low policy support countries increase supply
most
– South America, especially Brazil has great potential
• Uncertain: energy prices, demand for biofuel
Real international prices:
expected to decline (2005-07 average=1)
1.6
1.4
Wheat
Rice
Sugar
Beef
Veg. Oil
Dairy
1.2
1.0
0.8
0.6
0.4
0.2
2016
2013
2010
2007
2004
2001
1998
1995
0.0
Global food trade: growing faster
than production
• Growing interdependence in food supplies
• Greater concentration of exporters by
product.
– Newly emerging exporters
• Developing countries, and LDCs in
particular, are increasingly dependent on
basic food imports
• OECD policies are changing, affecting
their supplies on world markets
In the next ten years trade will
continue to grow faster than
production…
Annual average growth %
3.0%
2.0%
Production
Trade
1.0%
0.0%
Wheat
Rice
Coarse
Grains
Meat, Total
Oilseeds
Protection in agricultural products is high in
both developed and developing countries
(ad valorem tariff equivalent of country in column for
agricultural products imported from country in row in 2001)
USA
USA
BRAZIL
EU25
CHI-IND
ROECD
LDCs
ODCs
ROW
0.0
5.6
1.8
1.1
0.2
2.5
1.4
6.3
BRAZIL
5.9
0.0
7.3
8.7
5.5
10.1
1.5
10.3
EU25
5.1
3.5
0.9
12.7
3.2
3.0
12.3
2.9
CHI-IND
62.2
95.8
22.1
20.0
20.3
26.7
53.4
14.6
ROECD
36.3
99.3
16.3
86.8
32.1
32.3
20.1
10.0
LDCs
7.3
8.5
9.5
11.8
8.2
8.7
10.3
3.0
ODCs
8.9
9.8
12.8
6.8
5.5
6.3
9.1
16.3
ROW
11.1
29.7
16.3
7.9
11.2
5.9
16.7
4.5
Protection in processed food products is high
in both developed and developing countries
(ad-valorem tariff equivalent of country in column for
processed food products imported from country in
row in 2001)
USA
USA
BRAZIL
EU25
CHI-IND
ROECD
LDCs
ODCs
ROW
0.0
8.9
3.8
2.6
2.3
2.4
3.9
2.5
BRAZIL
14.7
0.0
16.4
12.2
16.5
9.5
3.1
5.8
EU25
16.4
34.4
1.3
19.9
14.2
13.4
18.6
9.8
CHI-IND ROECD
22.2
37.2
30.7
18.3
20.4
20.8
44.8
17.0
23.7
21.3
27.6
23.7
35.2
5.2
18.7
9.0
LDCs
19.6
19.1
25.6
23.3
20.3
13.6
26.6
15.2
ODCs
20.4
9.1
16.5
10.3
14.0
12.7
12.8
21.6
ROW
21.8
25.5
19.7
19.1
21.9
7.8
26.2
6.3
Conclusions. Recent agricultural commodity
high prices: Price spikes or trends?
Trend factors.
•
•
•
•
Strong growth in demand (economic growth and biofuel induced).
Slowing down due to financial crisis
Constrained supply (high energy related input costs to continue)
Low commodity stocks (will rebuild slowly)
Trade policies (decoupling of subsidies, biofuel subsidies, lower
public stocks, WTO Doha Round liberalization?)
Spike factors
•
•
•
Activity on commodity exchanges (likely to diminish with financial
crisis)
Repeated yield shortfalls in key areas – climate change? (likely to
continue)
Variable trade measures (export taxes and bans, import tariff
changes, efforts to build up stocks)
Overall Assessment
•
Much uncertainty and volatility in near and medium term
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