Tuesday, July 5, 2016

Commodities: 'Era of high ag prices quite likely over' - OECD, UN report

Gosh, I don't know. We're bearish, have been, unabashedly and out in public for what seems a long time but that is quite a statement.*
On the other hand, wheat prices collapsed (again), down 16.25 cents (3.65%) to hit generational lows:
From Agrimoney:

The period of high ag commodity prices is "quite likely over", sapped by a slowdown in population growth, the OECD and United Nations said - although milk powder, ethanol and soymeal values look poised to outperform.

The drop in agricultural commodity prices last year – when the sector offered negative returns of 15.6%, taking three-year losses to 34%, according to Bcom indices – highlighted a structural shift in value prospects.
"Prices for the main crops, livestock and fish products all fell in 2015, signalling that an era of high prices is quite likely over for all sub-sectors," according to a report from the OECD and the UN's Food and Agriculture Organization.
The downturn reflected factors including "several years of robust supply growth, weakening demand growth… lower oil prices and further accumulation of already abundant stocks".
And prices look set, over the next decade to "remain below recent peak levels", undermined by a drop to 1% a year in the rate of world population growth, and economic slowdown in some countries, with Chinese GDP seen expanding by 6% a year, down from 9% a year over the past decade.
Sugar, wheat softness
In real terms, ie stripping out the impact of general inflation, the performance will be even worse, with prices of many agricultural commodities declining over the next decade....MORE
*Way back in January 2009's "Corn Prices May Enter Decade-Long Slump, Agency Says" we noted one thing among many to be aware of:
Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere....
That post also linked to  May '08's:

A Black Swan in Food
...Donald Coxe, chief strategist of Harris Investment Management and one of my favorite analysts, spoke at my recent Strategic Investment Conference. He shared a statistic that has given me pause for concern as I watch food prices shoot up all over the world.

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Don, you have to go back 800 years to find a period of such favorable weather for so long a time....
So we're now up to 26 consecutive years without a major weather problem in the U.S. and with only (relatively) minor disruptions in the rest of the world over that time. Knock wood.