The world can breathe a temporary sigh of relief as agricultural commodity prices continue to take a breather in the near term on unexpectedly strong inventory levels and good harvest of crops amid a still-uncertain macroeconomic environment that could crimp demand growth.
Global prices for key agricultural commodities, including crude palm oil (CPO) and grains, have been trending down since the early part of the year and are expected to ease further in the second half of this year and early part of 2012.
CPO prices, for instance, are expected to average RM3,000 per tonne within the next six months, thanks to production recovery and inventory build-up.
According to the Malaysian Palm Oil Board, palm oil production in May expanded 13.7% to 1.74 million tonnes from a month earlier while inventory rose 14.8% to 1.92 million tonnes, the highest level since January 2010. Analysts expect CPO stockpile in Malaysia, the world’s second-biggest grower of oil palm, to rise to two million tonnes in the coming months.
September CPO delivery closed at RM3,050 per tonne yesterday on the Malaysia Derivatives Exchange. That may be a rebound from RM3,034 per tonne on Friday but the prices have generally eased compared with the RM3,400-RM3,955 level during the first quarter of this year.
“Recent rallies of commodity prices, to a certain extent, were also due to speculative activities fuelled by US Federal Reserve’s infusion of massive liquidity into the global markets through its quantitative easing (QE) programmes,” an analyst told StarBiz. “With the end of QE2, global commodity prices should ease over the near term compared with the second half of 2010 or early this year.”
Meanwhile, improving grain production prospects in North America, based on US Department of Agriculture’s (USDA) recent report, were also expected to ease pressure on commodity prices.
Goldman Sachs Inc had recently cut its price forecasts for grains, including corn, wheat and soybean. Its three-month price forecasts for both corn and wheat, for instance, had been cut by 26% to US$5.90 (RM17.73) per bushel from US$8/bushel previously. Its three-month price forecast for soybean, on the other hand, had been cut by 7.1% to US$13/bushel.
A report released last week by USDA said planted acreage for most crops, except for soybean, for this year had increased. Planted areas for corn and wheat, for instance, were expected to rise 5% this year to 92.3 million acres and 56.4 million acres, respectively, from 2010.
“In the immediate term, agricultural commodity prices will still be volatile as markets adjust to official output projections but the general trend is still towards lower levels in the coming months,” another analyst said. “Nevertheless, agricultural commodity prices would still remain high compared with their historical averages.”
A joint report issued by the Organisation for Economic Cooperation and Development (OECD) and the United Nation’s Food and Agriculture Organisation (FAO) lent strength to such views.
Published last month, the joint report on agricultural outlook for 2011-2020 said “commodity prices should fall from the highs of early 2011, but in real terms are still projected to average up to 20% higher for cereals (maize) and up to 30% for meats (poultry) over the 2011-20 period compared to the last decade.”
Assuming normal weather conditions, the OECD-FAO report said agricultural production was projected to increase in the short term as a result of an expected supply response to current high prices.
