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The Deeper Dive

May 2015

A deceleration in the global economy and a mismatch between supply and demand continue to pressure food grain prices

Agriculture commodities prices fell by 2.4% in March, according to the Commodity Market Monthly (April, 2015 Issue) published by IMF. Out of the last 11 months, food prices fell for 10 months, reflecting plentiful supply and favourable production outlook. The largest decline was for sugar prices, plunging 12% in March this year and to the lowest level in over 6 years on improved crop prospects, particularly in Brazil.

Coffee Arabica and Robusta prices too dropped 11% and 5%, respectively, owing to higher exports from Brazil, aided by a depreciating currency. Orange prices fell 10% on weak beverage demand and ample supply, although there have been concerns of disease in Texas and Brazil.

Food prices showed a downward trend throughout last four quarters and the average quarterly prices of select cereals and meat have declined continuously over the last four quarters thanks to ample supply coupled with the falling oil price and strengthening dollar.

Wheat: Supply Glut Continues

Export quotations of wheat declined significantly in February and March 2015 as ample world supplies continued to weigh on international prices. Overall, further improvements in supply prospects for the next season (2015/16) also added to the downward pressure. The average monthly prices of wheat declined consistently in Jan, Feb and Mar, 2015 with $248, $237 and $230 respectively. A strong US dollar has also had negative impacts on sales from the United States of America, thus contributing to the decline in export prices.

AgricultureMaize: Surplus Weighs On Prices

Export prices of maize in February were generally weaker. The average monthly price of wheat fell slightly to $173 per ton in February 2015, but rose marginally to $174 in March 2015. Large global supplies and favourable 2015 production prospects in South America, where harvesting has begun, put downward pressure on prices. In the United States of America, relatively strong export sales and forecasts pointing to a reduction in 2015 maize plantings provided some support and contained the price declines.

As regards the outlook for meat, prices decreased 6% on rising supply and exports from Australia. The monthly average prices of meat stood at $5.69, $5.71 and $5.42 per Kg for Jan, Feb and Mar, 2015 respectively.

Rice: Steady Fall

International rice prices remained under downward pressure in February, with the FAO All Rice Price index shedding 1% from the previous month, marking the sixth consecutive month of decline. The drop in the index was limited by a rebounding in fragrant rice quotations, which compensated for much of the decline that characterized the other rice types, in particular that of the higher quality rice.

However, the price of the Thai white rice moved marginally lower from $417 per ton in February to $411 per ton in March, contrary to the trends that prevailed in January. The marginal decline of prices in Thailand was mainly the result of offsetting domestic factors viz, the tendering of massive supplies from public rice inventories by the Thai Government and the prospects of a relatively small secondary crop to be harvested in the next few months.

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