Agricultural prices will climb in the next decade on a combination of higher energy costs, falling productivity growth and rising demand, the OECD and the UN’s Food & Agriculture Organization forecast.
Extended periods of low prices for farm goods, driven by ever-increasing yields and cheap oil, “seem now a feature of a bygone era,” the Organization for Economic Cooperation & Development and the United Nation’s FAO wrote in a joint report on the outlook for agriculture through 2022.
Farm production will grow less rapidly in the future due to limited availability of suitable land, water constraints and rising costs of inputs such as fertilizer, according to the report. Corn and soybean prices rose to a record last year, and have more than doubled from 10 years ago.
“With energy prices high and rising and production growth declining across the board, strong demand for food, feed, fiber and industrial uses of agricultural production is leading to structurally higher prices and with significant upside risk,” the OECD and FAO wrote.
Agricultural production growth is predicted to slow to an average 1.5 percent a year through 2022 from 2.1 percent annually in the past decade, according to the report. That will still beat population growth, with farm output per person advancing by 0.5 percent per annum over the period.
“Supply should keep pace with demand at prices that are expected to remain relatively high,” the OECD and FAO wrote. “World prices are expected to be sufficiently remunerative in the next decade to encourage further investment in agricultural production and technological enhancements to permit output to continue to expand to 2022.”
Even as population growth slows in the next decade, the world will still have an additional 742 million people to feed by 2022, according to the report.
China, the most populous nation, is seen remaining near self-sufficiency for most food commodities, with per-capita consumption of wheat and rice falling as consumers eat more meat and sugar. Local rice and wheat production will cover 98 percent of consumption by 2022, while China’s pork output will satisfy 99 percent of demand, the OECD and FAO forecast.
Global yield growth for crops, particularly grains, has been slowing for at least two decades, partly due to reduced investment in crop research, according to the report. That trend is expected to continue in the next decade.
“Measures to reduce food loss and waste will be important in meeting rising demand and for increasing productivity,” the organizations wrote.
Inflation-adjusted prices for grains, oilseed and cotton are expected to be “relatively flat” in the next decade compared with the previous one, while most other commodities are predicted to be “well above” the average of the previous 10 years through 2012.
The outlook assumes oil prices will climb by an average 2.6 percent a year over the decade to $144 a barrel by 2022.
World output of ethanol is forecast to jump 67 percent in the decade to 167.4 billion liters (44.2 billion gallons), led by gains in the U.S. and Brazil. Biodiesel produced from crops will gain 69 percent to 40.6 billion liters on an increase in the European Union, according to the OECD and FAO.
Biofuel production is predicted to use 29 percent of world sugarcane production, 15 percent of vegetable-oil output and 12 percent of the harvest of coarse grains by 2022, the organizations predicted. Coarse grains include corn and sorghum.
Stocks-to-use ratios for grains, sugar and oilseeds are expected to be at or near historical lows toward the end of the forecast period, the organizations said.
“There is more risk of price rises than falls with further periods of price surges and bouts of enhanced volatility in the coming decade,” the OECD and FAO wrote. “Short-term price surges have been a feature of recent years.”
Sharp price rises could happen again in the case of production shortfalls or restrictions on commodity trade, and such events could result in “substantially higher” average prices for agricultural commodities than forecast, the organizations said.
Wheat prices are projected to average $274.20 a metric ton by 2022, climbing from $256.50 a ton in 2015-16 following a drop from $301.30 in 2013-14, according to the report.
“Wheat and maize prices are projected to decline sharply in the near term as production responds to high prices and then to increase gradually over the remainder of the projection period,” the OECD and FAO wrote, using another name for corn.
World wheat production is projected at 784.5 million tons in 2022-23 from 697.4 million tons in 2013-14, while output of coarse grains may increase to 1.41 billion tons from 1.25 billion tons over the decade.
Oilseed output is forecast to climb to 490.5 million tons in 2022-23 from 408.2 million tons in 2013-14. China’s oilseed imports are expected to account for 59 percent of world trade at the end of the period from 54 percent, climbing to 82.8 million tons in 2022 from an expected 65.1 million tons in 2013, the report showed.
Raw sugar prices are expected to be climb to an average $438.70 a ton in 2022-23 from $410.20 in 2013-14, while refined sugar is forecast to trade at an average $536.40 a ton from $498.80 a ton.
Global sugar production will expand to 212.2 million tons in 2022-23 from 180.5 million tons, boosted by growing production of the sweetener from cane in Brazil and India, based on the outlook.
The price of U.S. beef is expected to be $4,570 per ton in 2022, U.S. pork prices are seen at $2,285 a ton and poultry prices at $1,279 a ton, according to the report.
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