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Commodity prices to drop over next 2-3 years: Study
Published in The Saudi Gazette on 18 - 06 - 2009

Commodity prices will be restrained by a weaker global economy for the next two to three years, while remaining above their average over the previous decade, a joint report by the Organization for Economic Cooperation and Development (OECD) and the UN Food and Agriculture Organization titled “Agricultural Outlook: 2008-2018,” covering biofuels, cereals, oilseeds, sugar, meats and dairy products said on Wednesday.
The report forecast that prices for food commodities would on average rise 10 percent to 20 percent in the next decade, compared with the average prices during the decade ended in 2006. Prices for vegetable oils would be more than 30 percent higher.
Dairy prices are expected to rise slightly in the next 10 years, driven up by higher costs of energy and vegetable oil, with a notable 12 percent increase in average butter prices. Dairy demand is expected in particular from developing countries, helped by income and population growth and changing diets.
Meat prices, it said, are unlikely to surpass the 1997-to-2006 average. They did not surge with other prices in the period before 2008.
“Continued weakness in the general economy will further dampen commodity prices over the next 2-3 years,” the two groups said in the report. Still, “the reduction in agricultural prices, production and consumption associated with lower incomes is likely to be moderate, as long as economic recovery begins within two to three years.”
Prices of wheat, rice and corn rose to records last year, sparking riots from Haiti to Ivory Coast. The number of hungry people in the world will increase to a record 1 billion this year, the FAO said last month. Its index of 55 foods rose for a third consecutive month in May.
“Unless we see energy prices rising rapidly, the risks are low but present” of a repeat of the surge in agricultural prices, Merritt Cluff, a senior economist at the Rome-based FAO, told journalists in Paris on Wednesday.
The report also highlighted the link between agricultural prices and energy costs, which can make up a substantial portion of a farmer's overall expenses. The report's forecast assumed crude prices of about $70 a barrel by the end of 2018; oil costs about that much now.
If oil prices were to increase to $100 or more a barrel, “agricultural prices would be significantly higher,” the report said, “with the largest impact on crops, driven mainly by reduced crop production with higher input costs, but also increased feedstock demand for biofuels.”
For biofuel markets, “prospects remain uncertain” due to unknown factors like the price of oil, policy changes and technological developments.
“Biofuels will struggle to compete with relatively low fossil fuel prices as long as crude oil prices remain in the $60 to $70” range, it said, “although biofuel support policies underpin ethanol and biodiesel prices and production.”


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