Global Agricultural Supply and Demand:
Factors contributing to higher food commodity prices, and prospects for the future
Ron Trostle
Economic Research Service U.S. Department of Agriculture
Russian Agricultural Outlook Forum
September 23-24, 2008
Food commodity prices have risen 130 % since January 2002 (>70% in last two years )
Index: January 2002 = 100
250
200
Food commodity price index
150
100
50
0
1980 M1 1982 M1 1984 M1 1986 M1 1988 M1 1990 M1 1992 M1 1994 M1 1996 M1 1998 M1 2000 M1 2002 M1 2004 M1 2006 M1 2008 M1
2
Source: International Monetary Fund: International Financial Statistics
Prices of many commodities rose even more
Index: January 2002 = 100
700 650 600 550 500 450 400 350 300 250 200 150 100 50 0
1992 M1 1994 M1 1996 M1 1998 M1 2000 M1 2002 M1 2004 M1 2006 M1 2008 M1
+ 585 %
Crude Oil All Comod Food commodity index
+ 329 %
+ 130 %
3
Source: International Monetary Fund: International Financial Statistics
Food commodity prices:
Indices for selected crops and total food
Index: January 2002 = 100
550 500 450 400 350 300 250 200 150 100 50 0
1970 M1 1972 M1 1974 M1 1976 M1 1978 M1 1980 M1 1982 M1 1984 M1 1986 M1 1988 M1 1990 M1 1992 M1 1994 M1 1996 M1 1998 M1 2000 M1 2002 M1 2004 M1 2006 M1 2008 M1
Corn Soybeans Wheat Rice Food commodity index
4
Source: International Monetary Fund: International Financial Statistics
Crop price increases: real vs. nominal
Average of 4 crops (wheat, soybeans, corn & rice)
Index: January 2002 = 100
800 700 600 500 400 300 200 100 0
1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1
Real prices
Nominal prices
5
Source: International Monetary Fund: International Financial Statistics
Factors contributing to higher food commodity prices
1996 1998 2000
+
2002
2004
2006
2007
2008
Increasing population
Strong growth in demand, based on: Rapid economic growth + Rising per capita meat consumption
Slowing growth in agricultural production Declining demand for stocks of food commodities Escalating crude oil price
Rapid expansion biofuels production Dollar devaluation Large foreign exchange reserves
Rising farm production costs Adverse weather Demand factors in brown Aggressive purchases by importers
Supply factors in green
Exporter policies
Importer policies 6
Total world grain & oilseeds1
Production, yield, area harvested, population & percap production
Index: 1970 = 100
220
Exponential trend growth rates:
200
Production Yields Area
1970-90 2.2 2.0 0.15 1.7 0.56
90-07 1.3 1.1 0.14 1.4 0.11
180 160 140 120 100 80
1970 1975 1980 1985 1990 1995 2000 2005
Population Per capita use
Production Yield Population
1 Total
oilseeds = soybeans + rapeseed + sunflowers
7 Source: Compiled from USDA’s PS&D Database
Percap production Area harvested
Global meat1
Production, per capita consumption, and population
Index: 1971 = 100
Exponential trend growth rates: 1975-90 Production 3.1 Population 1.7 Per capita 1.4 consumption 90-07 2.5 1.4 1.1
400 350 300 250 200 150 100 50
1970 1975 1980 1985 1990 1995 2000 2005
Production Per capita Cons
1 Total meat = beef + pork + chickens & turkeys.
Population
8
Source: USDA Agricultural Projections to 2017.
World grain & oilseeds
Total production and use
Million metric tons
3,000
Production Total use
2,500
2,000
1,500 1990
9
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: USDA PS&D Database
Total world grain & oilseeds
Stocks and stocks-to-use ratio
Million metric ons
800
Stocks / Use (%)
40%
Ending stocks Stocks / Use
600 35% 30% 25% 400 20% 15% 200 10% 5% 0 1970 0% 1975 1980 1985 1990 1995 2000 2005
10
Source: USDA PS&D Database
Biofuels production: Largest producers
Million Gallons
18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000
Ethanol
Biodiesel
Argentina Ukraine & Russia Brazil China Canada EU
2,000 0
USA
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
11
Source: USDA Agricultural Projections to 2017
Growth in world wheat and coarse grains use:
1980/81 - 2002/03 vs. 2002/03 - 2007/08
Use
1980/81 to 2002/03
2002/03 to 2007/08
MMT
%
MMT
%
Food Feed*
U.S. corn for ethanol Total
12
160 144
27 328
49 44
7 100
79 48
53 180
44 27
29 100
Adverse weather reduced production:
In 2005/06
• • • • • • • • • •
13
Australia Ukraine & Russia Australia: (2nd year of severe drought) Ukraine & Russia: drought (2nd year) Europe: dry spring; harvest floods SE Europe: drought USA: late spring freeze Canada: hot and dry NW Africa: drought Turkey: dry
and 2006/07
Total world grain & oilseeds1
Production, yield, & area harvested
Index: 1970 = 100
260 240 220 200 180 160 140 120 100 80 1970
1 Total
Production Yield Area harv
Trend growth rates: 1975-90 Prod 2.2 Area 0.15 Yields 2.0
90-07 1.3 0.17 1.1
oilseeds = soybeans + rapeseed + sunflowers
1975
14
1980
1985
1990
1995
2000
2005
Source: USDA Agricultural Projections to 2017
Value of U.S. dollar declines after 2002 1/
Index values, 2000=100
130 120 110 100 90 80 70 60 1970
1975
1980
1985
1990
1995
2000
2005
1/ Real U.S. agricultural trade-weighted dollar exchange rate, using U.S. agricultural export weights, based on 192 countries.
15 Source: USDA PS&D Database
Foreign Exchange Reserves
Emerging Asia: Foreign exchange reserves
$bn 1600 1400 1200 1000 800 600 400 Japan 200 OPEC Emerging Asia ex China China
Russia 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Oxford Economics / Haver Analytics
16
Policy responses to rising prices by selected countries
Country Raised export taxes x
Exports Export volume restrictions
Export bans
Imports Reduced import tariffs
Domestic policies Increased Imposed consumer price subsidies caps
.
Export policies: Argentina Cambodia Egypt Kazakhstan Russia Ukraine Vietnam
x
x x x
x
x
x x
Import policies: Bangladesh EU Mexico Morocco Mongolia
Philippines Thailand
x x
x
x
x x
x x
x
Policy responses to rising prices by selected countries
Country Raised export taxes Exports Export volume restrictions Export bans Imports Reduced import tariffs Domestic policies Increased Imposed consumer price subsidies caps .
Both export and import policies: China x x India x x Indonesia x Iran Kazakhstan Malaysia x x x
x
x x
x x x
x
x x x
Pakistan Russia Serbia
x x x x
x
x x
Spikes in food commodity prices: Will this time be any different?
Index: January 2002 = 100
550 500 450 400 350 300 250 200 150 100 50 0
1970 M1 1972 M1 1974 M1 1976 M1 1978 M1 1980 M1 1982 M1 1984 M1 1986 M1 1988 M1 1990 M1 1992 M1 1994 M1 1996 M1 1998 M1 2000 M1 2002 M1 2004 M1 2006 M1 2008 M1
Corn Soybeans Wheat Rice Food commodity index
19
Source: International Monetary Fund: International Financial Statistics
Categories of factors contributing to higher food commodity prices
Temporary factors:
Adverse weather
Trade policies by exporters and importers
Structural changes:
High oil prices
Continuation of long-term trends:
Rapid economic growth in many developing countries
Population growth in developing countries
Questionable future impact:
Further dollar depreciation Slower growth in ag productivity
Role
Biofuels production High ag production costs
Aggressive buying by importers
Increasing per capita meat consumption
of large foreign exchange reserves held by importers
20
Prices have declined from their peaks
(as of August 6, 2008)
Commodity Wheat Corn Soybeans
Down 42 % 33 % 23 %
Since peak in: Mid March End of June Early July
21
U.S. Commodity Prices: History & Projections
Soybeans, Wheat, Corn, & Rice
$ per bushel; ($ per cwt for rice)
14 12 10 8 6 4
Projections made in November 2007 Dots indicate August 2008 WASDE estimates for 2008/09
Rice Soybeans
Wheat
Corn
2 0 1980
22
1985
1990
1995
2000
2005
2010
2015
Source: USDA Agricultural Baseline Projections to 2017, February 2008.
Global Agricultural Supply and Demand:
Factors Contributing to the Recent Increase in Food Commodity Prices
The report is available at:
http://www.ers.usda.gov/publications/WRS0801.pdf
Ronald Trostle Economic Research Service U.S. Department of Agriculture rtrostle@ers.usda.gov
202-694-5280
23