2012 fall in global food commodity prices no cause for alarm: analysts

GLOBAL food commodity prices will fall during 2012, but not to levels to cause undue alarm to producers, according to leading investment analysts.

Food producers will be encouraged by new reports from Rabobank and Davy Stockbrokers. While both reports suggest trends similar to the latest downward food price predictions of the UN’s Food and Agriculture Organisation — with December prices 11.3% off their 2011 peak — their views are qualified by general optimism. The Davy report singles out beef prices for particular positive mention.

Luke Chandler, Rabobank associate director for Food and Agri Research, and co-author of the report, said: “We believe the long-term bull run in agri commodities remains, but expect prices across the complex to ease from their record highs, continuing their downward trajectory in place since mid-2011.

“Recession will be a threat to the agri commodity market in 2012 but, in our view, the expected resilient demand growth from many agri commodity markets in emerging economies will help mitigate the impacts from many economic downturns.

“We also anticipate lower-than-average stock levels of many agri commodities to support prices; while harvests are expected to be large, encouraged by the high prices, the supply response is still catching up to demand. In our view, a recession, if it does occur, would be expected to be shallow and not to impact agri commodity demand.”

The Rabobank outlook is centred on four key themes for the agri commodity markets in 2012: economic slowdown; speculation and the US dollar; policy risks; and capacity constraints.

Interestingly, the report also tracks likely commodity valuations against a calendar of political events, such as those general elections which the bank feels could have an impact upon food prices.

It also predicts likely rises in fuel prices such as oil and biodiesel, a cost area which Bord Bia posited earlier this week may prove hard for food producers to pass on to the consumer.

Mr Chandler explains: “Given the highly uncertain macroeconomic environment at present, Rabobank has decided to provide some scenario parameters for the report’s price and fundamental forecasts.”

These parameters include a base scenario of the market stumbling along; a high-case scenario of a recovery stronger and faster than expected; and a low-case scenario of the market going from bad to worse.