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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] 2009 to witness global agri-commodity shortage
  • Date: Tue, 20 Jan 2009 19:11:40 -0700


2009 to witness global agri-commodity shortage
2008-12-17 15:55:00
http://www.commodityonline.com/news/2009-to-witness-global-agri-commodity-sh
ortage-13483-3-1.html

LONDON: Despite stronger production and falling prices for many food
staples in the second half of 2008, the risk of food supply shortages
remains acute in world markets. These supply shortage risks stem from
reduced producer incentives – and ability - to boost food production.

Reduced access to trade credit, rising costs, bio-fuel competition, and
infrastructure shortages are among key factors that continue to weigh on
trend growth in world agriculture supply. Inventory levels are also low
relative to their long run averages, highlighting the underlying tightness
in food markets at present.

Tightening and more expensive credit is limiting the ability of producers
to borrow to finance seasonal inputs – notably seed and fertilizer. The
costs of these inputs has increased dramatically over the past few years,
with the USDA estimating that US total inflation-adjusted farm costs have
increased 28.5% since 2002 (a 52% increase in nominal terms).

Although the cost of these inputs may moderate slightly in the wake of
slowing global growth – for example fertilizer costs on falling energy
prices - input prices tend to adjust more slowly with farmers typically
price takers in both input and output markets.

Faced with high costs and constrained finance, the FAO expects world cereal
producers could cut back production in the 2009/10 season with reduced crop
plantings. Yields may also be reduced over the coming year as fertilizer
use is scaled back.

Bio-fuels demand growth is expected to continue, absorbing some production
of cereal products and partially offsetting a cyclical slowing in
discretionary food demand. Bio-energy absorbed 100 million tonnes of global
cereals production in the 2007/08 season based on FAO data, equivalent to
13% of world cereal consumption for food.

And production of transport biofuels is set to rise almost 200% between
2005 and 2015 according to the International Energy Association (IEA).
National energy security and greenhouse gas emission reduction objectives
by governments worldwide are spearheading government support for further
development of the world biofuels industry.

Emerging markets also face shortages in infrastructure, training and
technologies to adequately boost food production. These supply shortages
were highlighted by the recent supply response to the 2007-2008 surge in
food prices, with cereal supply responding in developing markets by just
0.9% vs. an 11% rise in developed economies.

Given the fact that global food demand growth will be driven by population
and income growth in emerging market countries, and that over half of the
world’s cereal production is sourced from these countries, increasing
this emerging market supply response in the future will be critical to
avoiding global food shortages in the medium term.

Recent export restrictions by grain producers in the Ukraine, India,
Pakistan and Argentina serve as a timely reminder of the underlying
tightness in the food supply situation in emerging markets. Recent stock
numbers paint a similar picture, with global inventories of corn wheat and
soybeans at their second lowest level since 1974.

Overall, food markets continue to operate in a high and rising cost
environment. Credit tightening has reduced the ability of farmers (and
countries) to borrow to cover these regular upfront operating costs at the
start of each season.

Furthermore trend biofuel demand growth has increased the relative price
incentive for non-food agriculture production. These impacts are amplified
in emerging markets by shortages in supporting infrastructure for food
production.

And historically low inventory buffers of food products leave the market
vulnerable to adverse supply shocks on a seasonal basis. The combination of
these factors suggest that agricultural food supply growth is likely to
remain constrained over the medium term despite the stronger near term
production outlook overall for the current agricultural season.

This research is prepared by ETFS Commodity Securities Limited




  • [Livingontheland] 2009 to witness global agri-commodity shortage, Tradingpost, 01/20/2009

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