Lower food prices unlikely to last: NFF

Posted by Isobel Drake on 21st July 2009

There are signs that panic emerging from the global financial crisis has begun to subside, although it has had a significant impact on global agricultural commodity prices, with the Westpac-NFF Commodity Index showing a 12.7% decrease over the past year.

Recent indications suggest the fluctuating price movements of the past 12 months among global commodity prices are dissipating as traditional demand and supply forces re-emerge.

“The world economy is beginning to pull out of one of the most severe recessions of the past 60 years,” Westpac Senior Agribusiness Economist Andrew Hanlan noted. “The International Monetary Fund has upgraded its world growth forecast for 2010 to a modest 2.5%, up from 1.9% previously. As the risks of another bout of global disruption recede markets are broadening their focus.”

“Industry is now able to refocus on individual commodity trends that were largely irrelevant in the wake of the global financial crisis,” Mr Hanlan added. “We are now starting to see both long and short term opportunities arising for individual agricultural commodities, particularly for barley and sugar – where relatively tight market conditions are supporting global prices.”

The Index declined 3.1% in June due to a substantial 5% surge in the Australian dollar compared to the US dollar. Barley was the only gainer – surging 10% for the month.

“It is notable that markets are now placing greater emphasis on predictions of falling global barley production in key exporting countries,” Mr Hanlan said.

National Farmers’ Federation (NFF) Vice-President Charles Burke advised food prices had stalled as supply surged, but this was not forecast to last.

“With growing conditions during June looking solid in the major agricultural production regions, unfortunately this has translated into lower prices during the month as supply prospects improve,” he said. “Australian farmers still firmly believe that the medium to long term outlook for our products are strong, despite the decrease for all but barley prices during June. This will become more evident as the global economy continues on its road to recovery.”

The commodities suffering falls were beef (-2.1%), dairy (-3.4%), wheat (-4.5%), sugar (-2.4%), cotton (-8.6%), canola (-2.5%). Only barley (10.0%) recorded an upward price movement.