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Corn+Soybean Digest

Despite Economic Slowdown, Higher Commodity Prices Projected Long Term

After dramatic increases in the prices of most commodities in the last three years, prices will retreat in 2009-2010. But growing demand for food, feed and fuel is expected to return them to historically high levels over the rest of the decade. That analysis is from the Food and Agricultural Policy Research Institute (FAPRI), whose analysts briefed Congress this month on their 2009 agricultural economic baseline projections.

A widespread economic slowdown in 2009 weakens demand for agricultural commodities and, coupled with the high carryover supply from the last two years of high prices, depresses commodity prices in the short run, says FAPRI. However, world population growth, recovery in income growth and bioenergy mandates drive prices back to their historic highs over the rest of the decade.

The recent market turbulence in the advanced economies spreads and slows 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 still post solid growth of 8.6, 7.7 and 7.5%, respectively.

FAPRI projects that 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.

FAPRI expects the world ethanol price to fall in the short run because of weak crude oil prices and large supplies driven by previous oil price increases. However, bioenergy mandates translate into growing demand, which again strengthens the price of ethanol through 2018. 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 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.

Other highlights from FAPRI's 2009 world agricultural outlook include: The world wheat price is projected to decrease further in 2009-2010 because of high carryover stocks. The world corn price is projected to decrease further in 2009-2010. In the long run, grain prices are expected to remain strong because of growing demand for food, feed and fuel purposes.

World trade of soybeans, soy meal and soy oil grows by 33, 31 and 37%, respectively, over the next decade. Argentina, Brazil, Paraguay and the U.S. account for 85% of the 296 million metric tons of world production in 2018-2019. China continues to dominate world soybean imports and expands its net trade to 56 million metric tons by 2018-2019.

Source: Food and Agricultural Policy Research Institute

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