Outlook in Brief
Currently strong world market prices for many agricultural commodities in international trade are, in large measure, due to factors of a temporary nature, such as drought related supply shortfalls, and low stocks. But, structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep prices above historic equilibrium levels during the next 10 years.
The Agricultural Outlook is a collaborative effort of the OECD in Paris and the Food and Agriculture Organisation (FAO) of the United Nations in Rome. Its main purpose is to produce an updated annual 10-year assessment of global commodity markets that includes analysis of recent developments and emerging issues, bringing together the commodity, policy and country expertise of both Organisations. The projections for production, consumption, stocks, trade and prices described and analysed in this report cover the years 2007 to 2016. The projections are presented in the Statistical Annex, and can be viewed in more detail at the website www.agr-outlook.org. They reflect many specific assumptions concerning key external factors such as macroeconomic performance, agricultural and trade policies, and trends in technologies as well as consumer preferences. The projections do not take account of weather shocks and related impacts on crop yields and livestock production, nor are changes considered to agricultural and trade policies – anticipated or otherwise – that have yet to be adopted by legislation or international agreements. Such deviations from these assumptions constitute some of the important uncertainties in the Outlook, the potential impacts of which are also assessed in this report.
International markets for wheat and coarse grains were characterised by substantial production shortfalls in 2006/07 following weather related reductions in major production areas. Australia, suffering a severe drought, has harvested 61% less wheat and 51% less coarse grains than in the previous year, causing a sharp drop in both exports and ending stocks. Production of wheat and coarse grains fell substantially in the European Union (EU) and the United States, too. Both weather-related yield reductions and a smaller cereal area harvested contributed to this. In total, Australia, the EU and the US produced some 57 Mt less wheat and coarse grains than in the previous year. While wheat production in India was in line with historical trends, the country stopped selling its large wheat stocks and had to import 6.5 Mt of wheat in 2006, up from very little in 2005. Good harvests in other countries, notably in China and some African countries, only partially offset these shortfalls.
Oilseeds and Oilseed Products
In the calendar year 2006, oilseeds markets have been characterized by considerable diversity but somewhat less dramatic price developments than other crop markets. Rapeseed prices and rapeseed oil prices have increased by almost 20% over the course of 2006. Other oilseeds and product prices have been less bullish. However, an impressive upward tendency for prices of all oilseeds and products was observed in the last quarter of the year. These price developments have been driven by the competition between oilseeds and cereals for acreage, particularly in the US. World prices of wheat and coarse grains have been driven up by reduced harvests in some countries and by booming ethanol production, in a context of declining stock levels. The oilseeds acreage – especially that for soyabeans – has been put under pressure, in turn, pushing prices up. That competition and the increasing demand for rapeseed oil for bio-diesel production have boosted demand and prices for the other vegetable oils as well. The strong increase in meal prices at the end of 2006 is also a consequence of strong cereal prices, as oilseed meal is increasingly demanded as a feed substitute for the relatively more expensive cereals. Stocks for soyabeans in the US have reached record level in 2006, underpinning the level of oilseeds stocks worldwide. Despite strong oilseeds demand and prices, high stocks level in 2006 can be explained by good harvests and the expectation of even higher oilseeds prices in 2007. Prices are expected to strengthen further in 2007 as oilseeds demand is expected to remain strong and high maize prices continue to pressure US soybean acreage.
World sugar prices experienced considerable volatility over the course of 2005-06, reaching a 25-year high in early 2006. Having strengthened since 2003, world prices surged in late 2005 and early 2006 under the pressure of tight global supplies and growing linkages between international sugar and oil prices, and then fell back again later in the year. As the deficit in the global sugar balance contracted throughout the remainder of 2006, world prices steadily declined. For 2006-07, the global sugar balance has moved strongly into surplus as production in both exporting and importing countries responded to higher world sugar prices in the previous marketing year. World raw sugar prices are projected to decline by nearly 27% to average around USD 11.5 cents/lb (USD 253.5/t) in 2006-07, due to abundant supplies, higher stocks and an emerging global surplus. The white sugar margin remained firm at the end of 2006 due to tighter supplies, following the withdrawal of large quantities of high quality white sugar exports from the world market with reform of the European Union sugar regime. As a consequence, white sugar prices are expected to fall in 2006-07, but at a slower pace than for raw sugar, due to delays in filling the gap in supplies left by the retraction of the EU from the world market.
The standard factors influencing the meat Outlook, including exchange rate movements, the rates of income and population growth, remain key to the evolution of the markets for meat. However, many other factors condition how markets will evolve, both internationally and at national levels. Meat markets will remain heavily affected by the incidence of animal disease outbreaks, associated increasing standards for meat safety and for animal welfare. Environmental standards will also play an increasing role in the future. Other factors include new policy initiatives by governments, the recent impact of the Australian drought, renewed competition from North American exports in the Pacific meat market, changes in disease-related trade barriers and the impact of renewable energy (bioethanol and bio-diesel) production on feed prices. Taken together, these meat trade and price shocks will increase the complexity of trade patterns, with additional countries importing and exporting meat, as events unfold.
The underlying market drivers affecting the projections for the dairy sector largely remain as reported in previous versions of this report. However, the recent surge in dairy prices, which have been already on the upswing from a trough in 2002-03, has displayed the driving forces for dairy markets with more clarity. Fundamentally, underlying economic growth in many countries, particularly in south and south-east Asia, but also in parts of South America, is increasing the demand for dairy products which are income sensitive. Demand continues to be also encouraged by the growing influence of retail chains and multinational companies which is facilitating consumer access to dairy products and in many countries also by government programs (i.e. school milk). On the other hand, reforms of dairy support policies, particularly in Europe, but also elsewhere in developed countries, have severely limited or reduced exportable surpluses from these countries. These developments are expected to underpin higher dairy product prices.
This section provides information on the methodological aspects of the generation of the present Agricultural Outlook. It discusses the main aspects in the following order: First, a general description of the agricultural baseline projections and the Outlook report is given. Second, the compilation of a consistent set of the assumptions on macroeconomic projections is discussed in more detail. A third part presents an important model element that has been improved for this Outlook, i.e., the representation of production costs in the model’s supply equations.
Trade Annex Tables
Glossary of Terms
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