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This post is drawn from a summary of an OECD-FAO report titled: “Agricultural Outlook 2015-2024”

In the past decade, the agri-commodities market has seen some years of tight supply and
spiralling prices as well as some years of strong harvests and a steep decline in output prices.
This piece will explore general trends in agri-commodities, in the context of developed and emerging markets, and share an outlook for the next decade. These trends are based on the following assumptions:
1) global economy growth at 3%
2) world population growth at 1% p.a.
3) differing rate of inflation across countries
4) strong US dollar
5) nominal oil price growth at 3.7% p.a.
6) policy implementation having no direct impact on production decisions in many individual countries.

Consumption Outlook
There has been a swift rise in demand for agri-commodities in developing and emerging countries over the last decade. This rise is a result of rapid urbanisation, high per capita income, and steady population growth. The last decade has also seen a slow down in developed economies due to saturated per capita consumption growth and limited population growth. These trends will likely continue though an uneven global economic recovery will slow the overall demand growth rate. Differentiated rates in income and population will also result in significant regional differences in consumption.

Shift from bio-fuels to animal feed
Over the outlook period, significantly low oil prices will eventually result in policies that restrict use of bio-fuels. Demand for cereals will then shift from bio-fuels to animal feed. Animal feed currently accounts for 36% of growth in coarse grain consumption. This number is predicted to grow to 70% in the medium term.

Rising caloric intake
Caloric intake in emerging nations is expected to increase by 6% to 2800 kcal per person by 2024. As the graph below shows, this is only marginally lower than the caloric intake projected for developed nations. (pg 3)



Production Outlook
Production trends have previously been dependent on land use, but high prices in the last decade have lead to the repurposing of agricultural land. Production, in the next decade, will depend more on dietary preferences.
This primarily implies that production of oilseeds is likely to go up, while cereals production will also rise – on account of higher coarse cereals production.

Rationale for this prediction: Profitable livestock sector boosts oilseeds demand
Improved profitability in the livestock sector will push up production of feed, which in turn will boost the demand for oil seeds. Despite disease outbreaks limiting supply, the livestock sector has remained profitable due to high meat prices and a sharp decline in feed prices (in the US, EU, Canada and China markets). This trend of meat-to-feed price ratio is likely to continue, thereby influencing production to expand by 24% over the outlook period. About 26 million tonnes of additional poultry meat will be produced globally by 2024.

Price Outlook
Though prices of agri-commodities have fluctuated, they have remained towards the higher side. Price moderation began in 2013 and this trend is expected to continue until real prices eventually decline over the next decade.

Nominal prices of crop and dairy are likely to increase marginally with meat prices following suit, but with a lag of two years. Record harvests in grains and oilseeds will push prices down further in the short term. These prices will begin to rise moderately by the end of the next decade.


Final Thoughts
Though there may be variability in actual price trends (a function of macroeconomic and yield uncertainty), growth in production will remain strongest in developing regions and concentrate in regions where resources are less constraining.

The last decade set a trend of steadily rising prices, but this trend will likely change over the outlook period. In a subsequent post we will analyse further how these trends may impact the cereals, oilseeds, and livestock sectors.

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