January 23, 2012

World Bank forecasts 2012 global commodity prices down 11%

Largely due to improved supply conditions and a fall in global demand, world prices of farm commodities like wheat and rice may decline by about 11% this year, the World Bank in its bi-annual Global Economic Prospects Report has said.

It predicted that supply conditions were likely to improve because of increased investments made earlier due to high prices. As per the multi lateral agency number of cues supported the outlook, firstly the moderate decline in energy and fertiliser prices. Second the expected improved supply of crops during the 2011-12. Third, no policy responses, similar to the ones during 2008, were expected to take place. According to the World Bank's forecast, prices of wheat, rice and corn were expected to fall by 9%, 6% and 12% respectively, as their supply was expected to go up 3.3%, 1.4% and 6.4%, as compared to their 2011 levels.

Indian government's decision to allow export of non-basmati rice along with good crop prospects elsewhere in the region was likely to keep grain prices in check. While, global prices of edible oils, soy and palm oil were projected to dip by 16% and 20%, respectively and prices of cocoa, coffee and tea too are expected to decline by 11%, 17% and 4%, respectively, in 2012. But the World Bank estimates that there will be maximum drop in prices of cotton and rubber by around 30%, because of strong supply and weakening demand. The report also cautioned about the more price variability induced by higher investment in commodities. Investment in commodities was set reach a record level of an estimated US$450 billion as of the fourth quarter of 2011.