Agricultural commodities are going through a period of lower and less volatile prices, according to the FAO Food Outlook released on Thursday. After several dramatic upward price spikes from 2007 through early 2011, most cereal and vegetable oil prices are on a trajectory that is both steady and declining, the Outlook reports in a special feature.
Among the reasons are high inventory levels, sharply lower oil prices and the renewed strength of the US dollar, none of which is likely to be reversed in the short term, although unexpected shocks, such as weather-driven impacts on harvests, can never be excluded.
The FAO food price index, a trade-weighted index tracking international market prices for five major food commodity groups, fell to a six-year low in August. New figures, also released on Saturday, show it inched up by about two-thirds of a percentage point from its August low to 165.3 points, which was still 18.9 percent less than a year earlier.
“The takeaway message here is that statistically, the most recent shifts in behaviour foresee downward price momentum with lower volatility,” Adam Prakash and Friederike Greb, both commodity specialists at FAO, write of their analytical findings.
The price path of the past few years, and the prospective path ahead, are not the same for all food groups. Rice prices tend to move independently from other grains, while sugar prices have always been volatile, having lost and gained over half their value more than 12 times since 1990. Meat and dairy products fit the broad trend but, as more perishable commodities, they often do so with a time lag.
Staple grains are at the core of the declining price trend, as a result of several years of robust harvests around the world, as well as stockpiling that has taken reserves to record highs. Such precautionary reserves are now being slowly unwound, and global cereal stocks will likely close the 2016 season at 638 million tonnes, down four million tonnes from their opening levels, according to new forecasts in FAO’s latest cereal supply and demand brief.
