Market Movements – Apr 2011 – Apr 2012
Worsening economic news in Europe and less favourable growth prospects in Asia have put a brake on world commodity demand and many prices were down year-on-year in the second quarter of 2012 as a result. Some positive US economic indicators were seen as the car industry has bounced back.
Egg prices in Europe stand out as having shown extraordinary rises over the past year. This is in part due to low prices at this time last year combined with the EU ban on non-enriched cages coming into play on 1 January 2012. The increasing enforcement of the ban in Europe led to reports of severe shortages of eggs and egg products in the compliant countries of the EU.
Softs such as coffee and cocoa have been in significant decline. It is feared that demand could fall, or at least not grow as fast as earlier expected, particularly in Asia, if global growth were to slow. Cocoa butter is seriously cheap, whereas the demand for cocoa powder in Asia has remained very strong. Sugar meanwhile has fallen due to rises in production in Thailand, Russia and India. Reports suggest a global sugar surplus of 4.7 to 5.7m tonnes is expected over the next 18 months and Brazilian output actually rose 3.2% this year despite a lack of rainfall and rising production costs.
Global grain prices have seen mixed results in the last twelve months. After the record production of recent years, grain stocks are reported to be good, but supply is not always where it is most needed. Increased output of wheat from the Black Sea region is benefiting North African supply and this is increasing global availability. US maize meanwhile has fallen on the expectation of higher supply and due to concern that the use of US maize in feed may decline due to falls in the size of the US cattle herd.
Vegetable oil prices have been inconsistent, with rises for palm and rapeseed oil countered by falls in soyabean, olive and sunflower oil. Despite persistent drought reports in South America (soyabeans), global vegetable oil supply is meeting world demand.
Dairy prices, particularly for milk products, have seen significant falls year-on-year. SMP for example fell due to oversupply and a fall in world demand. Milk supply appears to still be outpacing growth in milk product demand even with continuing strong purchases from China. Milk prices have been reducing as dairy processers cut their payments to farmers in an effort to maintain profitability. Excess supply from the US and Oceania has been building up.
Metals have declined mostly due to lower industrial demand, as China continues to control its monetary supply in order to limit inflation. Steel prices have fallen due to a lack of construction and industrial demand; overall aluminium prices have fallen due to weak macroeconomic data in Europe, rising stocks and a lack of orders. There was a rally in prices at the start of the year as some manufacturing industries picked up; however, prices have been declining ever since. Gold rose, as often occurs in times of economic uncertainty, as the precious metal was sought as a safe haven.
Recent economic news, has led to a current drop in the price crude oil, but crude oil prices overall are still up over the year, with consequent downstream effects on transport and logistics. In the plastics market, prices are also lower year-on-year, despite recent increases brought through by producers as a result of higher annual prices for crude oil and feedstocks.
Natural gas prices have fallen on increased supply, particularly in the US. The growing use of hydraulic fracturing (fracking), which is most advanced in the US, has opened up the prospect of new potential stocks and lowered prices as a result.
European pulp prices have fallen on low demand for pulp and paper products. Pulp consumption has declined as buyers face recession in the EU.
The cost of cotton is sharply down from last year’s highs amidst concern that global supply will exceed demand. There is anticipation of a third year of rising world stocks in 2012/13 as output has grown in almost all cotton producing countries and world production for 2011/12 was a record 123m bales.