Wednesday, December 4, 2013

Drop in corn values to depress food prices in 2014


A slump in values of the likes of corn and soymeal will feed through into a fall in food prices for a third successive year in 2014, before a small recovery kicks in in 2015, Macquarie forecast.

The bank, launching its own food price index, said that food prices would fall by 9.6% next year, only marginally short of the 10.9% expected for 2013.

However, prices will return to growth in 2015, of 2.8%, with values rising across a range of agricultural commodities, with soymeal, wheat and cocoa notable among exceptions.

"The index entered the downside in 2012 and will stay in this overall bearish trend until 2015, when we expect both agricultural and soft [commodity] prices to recover," Macquarie said.

Corn to fall

The prospects for prices of feed ingredients, which Macquarie is using in its index as a proxy for meat values, look particularly poor for next year, with losses for corn and soymeal forecast at more than 20%.

"The animal feed components will again drive the index lower," said the bank, which is relying largely on futures, rather than physical, prices in compiling the index, called the MacPI.

However, staple grains, a segment including rice and wheat, will be the weakest performer in 2015.

"All commodity groups, except staple grains, should finally turn bullish by the end of 2015, with the animal feed and sugar components contributing the most to the MacPI recovery."

'Fill a gap'

The food price index adds to those already compiled by the likes of the UN Food and Agriculture Organization, the International Monetary Fund and the World Bank.

However, Macquarie said that its index, which is compiled from 28 agricultural commodities, also including the likes of arabica coffee, sorghum and rapeseed meal, differed in being weighted towards consumption, rather than trade.

"We believe that trade volumes can at times incorrectly interpret the significance of a commodity in terms of global consumption and thus under- or over-estimate the contribution of an item to the whole index."

Furthermore, the MacPI, which will be updated every Monday, offers a predictive element which the bank hopes will "fill a gap in the market" and appeal to the likes of economists, agribusinesses and food producers.

Political importance

Food prices, which have a rich history on a rising trend of causing social unrest, have also increased back up the political agenda with growth in prices of many agricultural commodities to levels well above past averages.

However, ironically, it is low prices of one crop, coffee, which is currently causing particular unease, among rural populations of the likes of Brazil and Colombia for which the bean is a key earner.

Macquarie's estimate of a 10.9% drop in food prices in 2013 compares with a World Bank figure of 12% drop over the past year.

The UN FAO index sees prices down 5.3% in the year to October.

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