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Supply, Demand and Prices for Agricultural Commodities Presented to International Food Aid Conference April 15, 2008 Patrick Packnett Office of Global Analysis Foreign Agricultural Service
Farm Prices, Selected Crops:Recent History USDA/FAS-OGA/ISAD
Economist Intel. UnitSoft Commodities Index 1990 = 100 US Dollar Index – Year 1990 = 100; February 2008 forecast. FFB commodity groups and 2007 weights: Beverages 20.1%, Grains 46.4%, Oilseeds 28.6%, Sugar 4.9%
Macroeconomic Factors Drive Grain and Oilseed Prices Higher • Strongest growth in global economy in three decades • Consumer incomes are rising and middle class households are expanding rapidly, especially in large emerging markets where global import demand growth is concentrated • Impact on food demand is significant due to higher income elasticities in emerging markets • Value of the U.S. dollar continues to fall • Dollar has been depreciating since 2002. In 2007, real value fell to 30 year lows. Further declines expected through 2011. • Boosts purchasing power of foreign buyers of dollar-denominated commodities, thereby increasing demand and putting upward pressure on prices. • Renewable energy markets boost demand • Continued expansion of global biofuels production is boosting demand for grains and oilseeds and their prices • Higher oil price is largely responsible for boosting the competitiveness of biofuels, while also increasing cost of input, processing, and transportation for ag commodities
Wheat Prices Soar in 07/08 MMT $/TON
Governments React to High Prices • Several key countries raising export taxes, imposing export quotas or placing outright bans. • Moves designed to prevent food shortages and curb domestic food inflation. • Result – importers face higher prices, uncertainty in market, disincentives to raise production.
2007/08 U.S. Wheat Situation Tight Exports Jump Production Rebounds to Normal Level MMT MMT Consumption Exports
LowEnding Wheat Stocks Boost U.S. Price to Record Level $/TON MMT U.S. Domestic Price Range Midpoint Ending Stocks
U.S. Corn, Soybean,Wheat Planted Area 86 74.8 63.8
Select Food Aid Commodity Price Trends (f.o.b./f.a.s. US Gulf)2005 – 2008 (thru March)
U.S. Season Average Farm Price for Wheat1995/96 through 2012/13F Note: projections for 2007/08 are from the April 9, 2008, World Agricultural Supply and Demand Estimates and for 2008/09 through 2012/13 are from the February 2008 USDA Agricultural Projections to 2017.
U.S. Corn Exports Expected to Moderate as Ethanol Expands With Higher Production
#2 Yellow Corn Prices Prices have soared in the face of strong demand for feed grains, diminished competition, and reduced prospects for 2008 production 5-year Average = $118 (MY 02/03 – 06/07) Source: USDA/FAS-OGA/ISAD
Conclusions • Rebound in 2008 global wheat production may ease prices. • U.S. corn stocks tighten and prices increase. • Continued pressure on food aid budgets from high commodity prices.