Mega Trends in Agricultural Commodity Prices

Identifying mega trends in commodity prices will help the farmers to choose long term strategies. The price trends from 2009 to 2017 were presented here to understand the long term profitability of the farm sector and to choose right crops based on mega trends.

We have used the following international prices indices for the advisory.

The FAO Food Price Index consists of the average of five commodity group price indices weighted with the average export shares of each of the groups (for 2002-04). It is composed of 55 commodity quotations and updated monthly.

The Cereals Price Index is compiled using the grains and rice price indices weighted by their average trade share for 2002-04. The grains price index consists of the IGC wheat price index and 1 maize export quotation. The rice price index is composed of the average prices of 16 rice quotations.

The Oils and Fats Price Index consists of an average of 10 different vegetable oils weighted with average export trade shares of each oil for 2002-04.

The Sugar Price Index is an index form of the International Sugar Agreement prices with 2002-04 as base.

The Meat Price Index is computed from average prices of four types of meat, weighted by world average export trade shares for 2002-04. Quotations include two poultry products, three bovine meat products, three pig meat products, and one ovine meat product.

The Dairy Price Index consists of butter, skim and whole milk powder, cheese, and casein price quotations. The average is weighted by world average export trade shares for 2002-04.

There was secular downward trend of world food price index, mostly due to the low crude oil prices, but there was slight recovery since mid-2016. Except sugar, prices of all other commodities are declining or stable during the last five years. Being sugar is cyclical, there as a likely possibility of sugar prices may comes down, but prices of dairy and oilseed may increase, hence farmers can choose to diversify towards dairy and oilseeds.

We have also used the IGC grain and oilseeds index. The daily IGC Grains and Oilseeds Index is comprised of the Agricultural Market Information Systems(AMIS) commodities plus barley, sorghum, and rapeseed/canola. With January 2000 taken as its base, component weightings are based on their five-year average share of the total trade of all commodities considered. The sub-indices for wheat, maize, rice and soybeans are based on daily price quotations from several official and trade sources. Among all price indices, soybeans price index is bit higher followed by grain and oil seed index, maize, wheat and lowest for rice. The data shows that rice is historically low and farmers should diversify from rice to other crops like maize, soybean where ever water is scarce.

Wheat prices are on downward trend since 2014, but recently started rising given the global short supply and low stock levels. Again wheat prices are at historical low levels recorded during 2009. But the harvest season for wheat in India is already started; hence there is a likelihood that the prices may fall from the current levels. Hence there was a scope to diversify from wheat to other rabi crops like chickpeas, lentils, rapeseed and mustard and vegetables.

Maize prices are again peaked during 2012-2013 and sharply reduced by 2015 and continue at that level, but very recently there was a sign of increase in prices since mid 2016. It is likely that the prices of maize may be higher or stable during this year. Farmers may be advised to take up maize wherever the climate is suitable.

Rice prices are peaked between 2011 and 2013, but reduced between 2013 and 2014 and stable thereafter. In recent years there was an upward movement of prices. Given that the assured prices through Minimum Support Prices, it may be advisable to grow rice in the areas where water is plenty and having comparative advantage like area under tanks and canals, but it should be discouraged under bore wells and open wells. The area can be diverted to cotton, soybean and maize

The prices of soybean are also higher during 2012 and 2013, but then after reduced slowly, now again raised from 2016 onwards. Given India is the largest importer of edible oils, there is a good scope for increasing area under the soybean both for oil as well as to meet the export demand for oilcake. Hence farmers can be advised to increase area under soybean where ever climate is suitable.

After a slump in cotton prices from 2014 to 2016, from May 2016 there was an increase in cotton prices in India. It is likely that the prices of cotton may be stable or at higher level due to increase in domestic as well as export demand. There is a scope for increasing area under cotton in the coming kharif season wherever there are low wage rates, as it is labour intensive crop especially during the picking season.

Pulses prices peaked in December 2015, then after showing signs of declining. Still prices of pulses are above historical prices. However, in most of the years market prices are above MSP, hence farmers are encouraged to grow pulses. The prices of arhar, moong and urad are likely to be higher than MSP in the coming klharif harvest season.