Tuesday, April 19, 2011
Consumption Is Growing But How Much Will Commodity Prices Rise In The Foreseeable Future?
Agriculture, both domestic and global, seems to be providing the horsepower to pull the world out of the recession. Commodity prices are at record highs. Developing and middle income countries are buying food left and right to provide jobs in those nations that have food to export. And many of those developing countries that have their own agricultural industry are expected to see substantial economic growth over the next decade. If that is the case, what can you expect for the Cornbelt economy between now and 2025?
Crystal ball gazing is the job of economists at the Iowa State University section of the Food and Agricultural Policy Research Institute (FAPRI). And their crystal ball has provided a look at the economy over the next 14 years, both in terms of growth and prices of commodities. In the big picture (they call it macroeconomics) the US economy grows by an average of 2.74% per year over the projection period (until 2025). That is about the midpoint of economic growth for North America, but only one-third of the rate for Asian economies and about two-thirds of the growth rate for South America. While the US dollar got stronger in 2009, that trend will reverse, say the FAPRI economists over the coming decade, which would mean continued strength for US exports. Their big picture also includes a look at bioenergy, and they say mandates will be a key driver of biofuels contribution to the economy.
Wheat prices that will be $7.20 per bushel next year will be closer to $7 in 2025. Global wheat trade will grow, but the US market share will decline to only 15% because of strong competition, with both China and India turning into wheat exporters.
Corn prices that will drop to $5 per bushel in 2011 will only be in the $5.30 range by 2025. By that time, the global stocks to use ratio will be about 14%, and the US will see a declining share of the world trade in corn. US exports will grow over time with less from South America. And by 2025, China will become a net importer of corn by 2017.
Soybean prices will “increase sharply,” beginning with the old crop, and production will rise along with demand. While prices will dip slightly in 2012 from increased acreage, strong demand for vegetable oil will keep oilseed prices high for the balance of the period. Production will expand from 257 mmt in the current marketing year to 315 mmt by 2025. Brazilian exports will increase by 31% as US exports decrease from 46% of the global market to 36%. China will remain the major global consumer of beans and will buy 31% of production and 70% of exports.
Ethanol prices rise over most of the next 14 years, but begin to decline in the last four to $2.50 per gallon, compared to the current $2.l8. US will not only export ethanol, but also import it with volumes reaching 3.3 billion gallons by 2025. Production will rise from the current 13 billion to 15.6 billion in 2025. Most of the imported ethanol will originate in Brazil, which will also be producing 13 billion gallons by 2025.
Meat consumption will increase over the 14 year period to 138 pounds per person, with pork being the most popular, followed by poultry. Rising demand fuels a 28% increase in world meat production. The economic recovery will push livestock and poultry prices higher, with beef prices reaching tops of $114.85/cwt, pork topping at $66.47/cwt, and poultry topping at $103.83/cwt. Strong demand and growing income push milk production up 32% by 2025.
Summary:
A slow recovery from the current recession will be fueled by greater consumption and demand for agricultural commodities, however, prices will not explode higher over the next 14 to 15 years, but instead end the period at slightly higher levels than where prices are currently. For some commodities, the US will decline from global leadership in production and in exporting.
Posted by Stu Ellis on 04/19 at 12:00 AM | Permalink