Michael Ferrari's  Instablog

As of April 2009, the Food and Agriculture Organization food price index had risen for the third consecutive month.  The composite index, comprised of the weighted index values for 55 commodities, has come off significantly since this time of last year and is now roughly in the same territory as it was back in mid 2007.  So at this juncture in 2009, do we anticipate a further decline or is this just a resting point before another spike?  The road ahead is somewhat more complex than it might appear upon first glance of the fundamentals at the primary origins.  The Economist reports today that world food prices are now 2.2% lower than the start of 2008, driven largely by a decrease in the price of wheat.  The May USDA World Agricultural Production report is estimating global 2009/10 corn and soybean plantings and production to be equal to or greater than 2008/09, while they expect wheat to exhibit a decrease.  With wheat and soybean reductions due to poor weather in Argentina now well documented and priced into the market, and a favorable outlook for Ukraine/FSU production, it would appear that the trend downward could be extended.  However, projected 2009/10 US stocks in the US for coarse grains, wheat, and total grains are all expected to be lower than the 2008/09 crop year.  Weather triggered planting delays in the eastern corn belt & Northern Plains and a potential shift in the planted acreage mix (replanted corn, shifting to soy, etc.) could exacerbate this situation a little more before mid summer.  Further, the Weather Trends precipitation outlook for the coming year is not extremely favorable in many of the world’s primary growing origins, so stresses to global stocks for primary grains could increase in the coming months.  Even with reduced global economic activity, people still need to eat; in fact, the economic situation amplifies stress on the supply side of the grains complex as meat and livestock consumption may be curtailed in favor of grains and cereals.  

I am not a believer that a quick economic recovery is in the works.  Further, while I do not support the view that the next 12 months in the agricultural futures markets will resemble the behavior of the previous year, I remain cautiously optimistic regarding the upside potential of these indices, and their underlying futures, for the months ahead.