Increasing commodity prices likely to put pressure on livestock industry
Thursday, September 27, 2012 12:55 AM
Food prices are once again on the rise, fueled by the lingering U.S. drought and water scarcities in South America and Russia. According to a report released by the Rabobank Food & Agribusiness Research and Advisory (FAR) group, such prices are likely to reach an all time high the first quarter of 2013 and will present a challenge for the livestock industry.
The report, titled "Re-entering Agflation" highlights how the affected commodities are those used in animal feeds and not considered core food staples of the world's developing economies - a striking difference from 2008, when low wheat inventories and restricted rice exports held back the availability of those commodities for consumers.
"The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat," said Luke Chandler, Global Head of Agri Commodity Markets Research at FAR and author of the report. "In developed countries - especially the U.S. and Europe - where meat and corn prices elasticity is low, the knock-off effect of high grain prices will be felt for some time to come."
Chandler notes that the impact of higher grain and oilseed prices will be significant for the livestock sector as it is likely to be squeezed by higher feed costs. The long production cycles of livestock, notably cattle, will keep pressure on rising food prices as herds take the time to rebuild. The full effect of this commodity price rally and the subsequent lower meat and milk output, will be a multiyear rebuilding of herds, which will keep price levels high. Meanwhile, beverages and value-added product sectors will be less affected as grains and oilseeds constitute a smaller part of the overall production costs. The report estimates that the Food and Agricultural Organization (FAO) Food Price Index will rise by 15 percent by the end of June 2013. Rabobank expects prices - particularly for grains and oilseeds - to remain at high levels for at least the next 12 months.
The report also notes that stockpiling and export bans are definitely possible for the end of 2012 and 2013 as governments try to protect consumers from rising food prices. Rabobank suggests that such efforts will be counterproductive and cause even higher spikes in commodity and food prices.
- Rabobank Food & Agribusiness Research and Advisory