Global grain and oilseed prices will lead strong agricultural markets this year and next as surging demand for food, feed and fuel combines with low stock levels, the Economist Intelligence Unit said on Wednesday.
Grain and oilseed prices are on course to rise some 16 and 29 percent respectively in 2007 and markets will stay in deficit until 2009. Prices are set to rise by five percent in 2008, the London-based EIU added.
"The ethanol and biodiesel industries are pushing up demand for crops such as maize, soybeans and palm oil," Kona Haque, Senior Commodities Editor at EIU, said in a press release. As a result, stocks will drop further and the inevitable price rise will have knock-on effects on substitute crops and end-use sectors such as livestock and dairy.
The EIU said its Food, Feedstuffs and Beverages (FFB) index was set to jump 16 percent this year and will rise a further two percent a year in 2008-2009, suggesting the commodity-wide price boom was far from over. Grain prices are likely to stay high and although they are starting to affect consumption, they could also stimulate increased production.
A huge US maize crop will temporarily relieve an acute shortage but stocks will fall again in 2008-2009. Oils and oilseed prices were entering a period of high but volatile prices. Despite an increase in soybean supplies from South America, the market was anticipating a further reduction in global stocks.
"Oilseed prices could be driven even higher if a prospective increase in South America's 2007/08 crop area fails to materialise," the EIU said. The EIU's beverage index will rise 10 percent this year but is set to fall by almost as much next year, it said.
Uncertainty over Brazil's coffee crop, which has prompted speculative buying and hoarding by farmers, and a poor cocoa harvest, coupled with political instability in the Ivory Coast, has supported prices this year.
However, producers are responding to attractive prices (now in their fifth year of consecutive increase) and by 2008 production of both markets will overtake consumption.
"The resulting growing surplus will see prices ease over 2008-2009," the EIU said. 0It said coffee prices should be sustained into 2008, with the usual fourth quarter bounce when northern hemisphere demand reaches its seasonal peak but then downward pressure is likely to emerge in early 2009. The outlook for cocoa prices is to plateau over the longer term although they will remain well supported.
Sugar is the only price index to fall in 2007, and prices will tumble by a third from their overvalued highs of 2006 following a surge in output from key producing areas. The EIU said prices would bottom out in 2008 and then rise by 7 percent in 2009 as increased demand for sugar as a biofuel stock supported prices.