A little post today from the SMH is worth repeating:
Agricultural commodities will keep falling after farmers responded to higher prices, resulting in excess supplies of everything from corn to sugar to coffee, say analysts at Macquarie Group.
The Macquarie Agricultural Commodity Price Index of 28 raw materials will slide 14 per cent this year, extending 2013’s 10 per cent decline, the bank said in a report. While higher prices encouraged farmers to boost plantings, the bearish trend will encourage consumers to build stockpiles and cut incentives for area expansion before the new season.
“We are seeing markets that generally are much better supplied,” Kona Haque, a London-based agricultural commodities analyst at Macquarie, said in a call with reporters today. “We are essentially in a supply-response mode.”
The Standard & Poor’s GSCI Agricultural index retreated 22 per cent last year, the biggest loss since 1981. The gauge gained 3.9 percent in 2012 as the worst U.S. drought since the 1930s sent corn and soybean prices to records.
Supplies of raw sugar and arabica coffee started expanding after prices reached a 30-year and 14-year high respectively in 2011.
Here’s the rural commodity price index (green) from the RBA:
