AGRICULTURE: Slight Price Rally No Cause Yet for Celebration

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 14 1999 (IPS) - The recovery of the economies of Asia has led to a rise in prices of commodities like copper, oil and steel. But while the demand for grains has increased, prices have only rallied slightly, despite drought in the United States, the top producer of soy and corn.

Analysts who track trends in commodities, key export products for developing nations, agree that the slight rise in prices of grains and oleaginous seeds is no cause yet for celebration.

According to a report released Tuesday by the Asian Development Bank (AsDB), the economies of Asia – which have played a major role in stimulating growth of Latin American exports – recovered more than expected this year, in the wake of the crisis that broke out in 1997.

South Korea, the Philippines, India, Indonesia, Malaysia, Singapore, Thailand and Taiwan have grown more than the AsDB had projected. Recovery was also seen in China, an encouraging development for commodity exporters.

However, the main beneficiaries of the longed-for rise in commodity prices have so far been producers of oil, steel, aluminum and copper, while exporters of grains remain hostage to price swings.

September prices of corn, soy, wheat, cooking oils and flour indicate a reassuring trend: after two years of steadily falling prices – of around 40 percent on average – grains and oleaginous seeds seem to be finally bouncing back.

But the recovery is a mild one, even though the rise in demand in Asia has been accompanied by a crisis for U.S. soy and corn farmers hit by continuing drought.

According to the Mediterranean Foundation of Argentina, prices have rallied between two and four percent on last month’s levels, and are still rising gradually but steadily.

The U.S.-based Commodity Research Bureau concurs with that assessment. The Bureau’s price index indicated this month that after an unprecedented rise in mid-1996, prices have been dropping since the Asian crisis, until they slowly began to rally in the middle of this year.

But oil and metals account for most of the rise in prices. Oil, which had plunged to its lowest level in 30 years – 11 dollars a barrel – as a consequence of the Asian crisis, now costs 22 dollars, since oil exporters cut production.

Analysts attribute that improvement to a growth in demand in Asia, particularly Japan, added to the cutbacks agreed by producers. The increase in demand for oil in turn drove up demand for steel and aluminum.

Steel plunged from 380 dollars a tonne prior to the Asian crisis to a low of 239 early this year, while the price of aluminum dipped from 140 to 77 dollars.

But with the increase in demand in Asia – which needs steel pipes for oil distribution – prices rallied between 30 and 46 percent so far this year.

Copper is another case in point. Demand for copper fell after the economic meltdown in Asia, which affected the entire economy of Chile, whose chief export is copper. But after slumping to a low of 63 dollars a tonne, the price has begun to float up again.

In the case of soy, of which Argentina and Brazil are – after the United States – the world’s leading producers, the price of over 400 dollars a tonne seen three years ago looks today like an impossible dream.

Soy prices plummeted to 130 dollars a tonne this year before beginning to rally. Today, prices stand at around 170 dollars, pushed up not only by increased demand in Asia but also by the drought hurting the soy-growing region of the United States.

But the weather phenomena influencing today’s prices are precisely what makes farm observers fear that today’s price rally could be tomorrow’s slump.

“The rough times have passed, and July’s dismal outlook has changed,” said analyst Ricardo Baccarín, with the Argentinian consultancy Panagrícola. He warned, however, that celebrations were not in line, especially given the severe crisis gripping the agricultural sector of this Southern Cone country.

For Argentina’s farmers, taxes and a lack of access to credit have compounded the complexities of an international scene marked by the slide in prices and continuing practices of farm subsidies in the United States, European Union and Japan.

Analysts say that means the only thing to do is wait for even stronger recovery before farmers dare to expand their crops, without fears that a new crisis of excess production lies just around the corner.