Higher commodity prices projected over the next decade

by MEAT&POULTRY Staff
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WASHINGTON — Growing demand for food, feed and fuel is expected to return commodity prices to historically high levels over the rest of the decade, according to analysts with the Food and Agricultural Policy Research Institute (F.A.P.R.I.), who briefed Congress this week on their 2009 agricultural economic baseline projections. F.A.P.R.I. is an economic research group with centers at Iowa State University and the University of Missouri-Columbia.

A widespread economic slowdown in 2009 will weaken demand for agricultural commodities, and coupled with the high carryover supply from the last two years of high prices, will depress commodity prices in the short run. However, world population growth, recovery in income growth and bioenergy mandates will drive prices back to their historic highs over the rest of the decade, according an Iowa State University news release.

The recent market turbulence in the advanced economies will spread and slow world economic expansion in 2009. However, recovery is projected in 2010, with long-term real growth in world gross domestic product of 3.5% reached by 2011. A bright spot in the outlook is that after the recovery, China, Vietnam and India will still post solid growth of 8.6%, 7.7% and 7.5%, respectively. After substantial projected appreciation of the U.S. dollar in 2009, the U.S. dollar will depreciate (inflation adjusted) over the rest of the decade against the currencies of most trade partners and competitors in international export markets, with the exception of the Brazilian real.

Global net trade in ethanol is projected to increase by 3.68 billion gallons and reach 4.90 billion gallons by 2018. Biodiesel mandates in the Americas and Europe will sustain the high price of biodiesel, with growth in consumption mostly met by domestic production, as the traditional South American exporters also face domestic mandates.

Shortages in many exporting and producing countries and strong import demand drove grain prices up sharply in 2007/08. An adequate response to the demand softened prices in 2008/09. The world wheat price is projected to decrease further in 2009/10 because of high carryover stocks. The world corn price decreased in 2008/09 with the lower import demand in world markets. It is projected to decrease further in 2009/10. In the long run, grain prices are expected to remain strong because of growing demand for food, feed, and fuel purposes.

Sanitation and food-safety concerns in China continued to impact the world meat market, as did issues with traceability. Sustained growth in world population and income raises per capita meat consumption and will fuel a 24.3% expansion in world trade. Trade is projected to end at 21.1 million metric tons in 2018. A recovery in demand, coupled with strong grain prices, pushes all meat prices to historically high levels. Brazil and the United States gain significant shares in the world meat market.

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