07 Jun 2021

Higher prices year-on-year across a broad spectrum of goods and services have raised concerns about inflationary pressures within the agricultural sector. The May FAO Food Price Index revealed a steep appreciation, reporting a 30.8 percent rise compared to last year. US futures markets, the global benchmarks for primary commodities, also confirmed outsized gains since last year, with wheat, maize and soybean prices in May reaching their highest levels since 2013. Similar increases were also observed to varying degrees in sectors such as energy, metals, raw materials, equities, housing, and the more recent phenomenon of crypto currencies, precipitating a debate on whether high prices were transitory or presaged a more lasting development.

The COVID-19 pandemic caused an abrupt fall in economic activity in 2020, marshalling unprecedented fiscal and monetary responses across the globe. The US government, for example, issued direct payments to citizens and loans to small businesses, among other measures, to counteract the plunge in wage earnings, while the US Federal Reserve signaled a continuation of loose monetary policies. Not surprisingly, equities trading volumes doubled in this period. The flood of investment into this sector, including exuberant valuations in certain equity shares culminated in Congressional hearings, while also raising the specter of a stock market bubble and asset class inflation.

Although inflationary tendencies might appear to be driving commodity food prices higher, the evidence points more to the unique supply and demand conditions that unfolded over the past year. Projections for a sharp decline in demand and a slump in trade due to the pandemic proved wrong as US trade expanded in grains/oilseeds by 150 percent year-on-year, with a resurgent China dominating the maize and soybeans import markets. Additionally, markets fell into an over-supply trap, tumbling to multi-year lows as the USDA projected initial crop sizes (May 2020) at record levels, subsequently slashing numbers throughout the crop year – in the case of maize by 46 million tonnes.

Moreover, certain futures markets indicators also suggest fundamentals to be behind the gravity-defying price ascension. Throughout the year of steady price rises, futures volumes failed to break into record territory, undermining claims of speculative fervor. Implied volatility also remained fairly tame on a monthly average basis between levels of 20 and 30. The brief upward spike exhibited in May, along with expanded options trading were both signifiers of routine, near-term market tops rather than signs of speculative excess. Finally, forward curves displayed extreme backwardation for wheat, maize and soybeans as spot demand, indicated by high basis levels, outstripped available supplies, encouraging both the rationing and deferring of demand.

In sum, the current high-price food environment appears to be mostly driven by fundamentals and will probably persist to some degree owing to the tight carryout situation projected through 2021/22. Going forward, AMIS will continue to monitor technical indicators which can help identify the underlying constituents of price formation and provide an interpretive lens to unfolding price environments.


03 Jun 2021

Despite an overall favourable production outlook, global supplies of AMIS crops could still prove vulnerable in 2021/22, in particular because of uncertainties relating to demand from the feed and industrial sectors. The month of May registered yet another increase in international prices of most food commodities, underpinned by brisk trade and a weaker dollar. The coming months will be critical for how food markets evolve. Global grain and soybean inventories could prove barely sufficient in case of a major production shortfall, while a speedier recovery in global economic activity could spur demand for these crops at a much faster rate than currently anticipated.

The next AMIS Market Monitor will be released on 8 July 2021.

10 May 2021

At its 21 April meeting, the AMIS Rapid Response Forum (RRF) took stock of the uncertain economic and trade environment caused by the year-long global pandemic. For 2021, the latest IMF estimates point to a 6 per cent world economic growth while WTO projects an 8 per cent rebound in the volume of merchandise trade. However, renewed outbreaks already threaten to undermine this outlook. A resilient, inclusive, and sustainable global economic and trade recovery remains conditional upon the pace and successful deployment of vaccines worldwide. The interplay between trade and health protection has gained prominence. Defeating the socioeconomic impacts of the pandemic and fully restoring trade flows will require strong international policy dialogue, information exchange, cooperation mechanisms and coordinated solutions in a range of WTO disciplines.

So far, policy responses have largely been designed to recuperate mobility; strengthen economic activity; boost household consumption while mitigating critical food security needs; and facilitate international trade flows. On-going efforts to strengthen existing multilateral trade rules would contribute to reactivate the global economy, revive the competitiveness and income prospects of commodity-dependent exporters, and reduce the trade bills facing net-food importers.

In reforming agriculture trade disciplines, the well-known overall policy spectrum of market access, domestic support, export competition, and export restrictions remains under mandated negotiations aimed at a market-oriented trading system. While government assistance in the form of direct payments, income support, public stockholding, and food assistance continues to be rolled out to counter health, social, economic, and food security impacts, dismantling harmful support policies remains a clear priority. A multilateral outcome to exempt WFP's humanitarian food procurement from export restrictions is also potentially within reach.

Although many policy responses were initially intended to facilitate safe trade, a plethora of concerns continue to be raised on restrictive sanitary and phytosanitary (SPS) measures, including import restrictions, pesticide policies and maximum residue levels, testing and certification for GMO-derived food, listing and registration requirements imposed on export establishments, delays in approval procedures, COVID-related port-of-entry rejections, reportedly applied without sufficient scientific evidence or proper risk assessment. Structured peer review and monitoring mechanisms are proving instrumental in providing a forum for discussions, resolving tensions, building common ground and hence contributing to regulatory convergence. In addition, fresh discussions were launched on ways to reaffirm the fundamental principles of the SPS Agreement in relation to the challenges facing sustainable agriculture in the 21st century.

On the ground, the Standards Trade Development Facility (STDF), a global partnership of leading health, agriculture, trade and development experts and institutions, proactively catalyses public and private support and delivers projects that assist farmers, producers, traders and governments in developing countries to meet SPS requirements for trade, based on international standards. The STDF also identifies and promotes good practices to improve SPS capacity development outcomes on diverse cross-cutting topics, including public private partnerships, use of evidence to prioritize SPS investments, electronic SPS certification and good regulatory practice. Since COVID-19 was declared a global pandemic, the STDF introduced a range of specific actions to manage the risk of COVID-19 across STDF's work and emphasized the importance of SPS investments to support economic recovery and longer-term resilience against future outbreaks of pests and diseases.

While the pandemic accelerated countries' adoption of e-documentation, e-certification, and other IT-based tools and technologies, the progressive implementation of the Trade Facilitation Agreement is expected to further expedite the movement, release and clearance of goods, foster cooperation between customs authorities, and streamline customs management. An enabling and inclusive legal framework for e-commerce would also support the emerging digital economy, fostering resilience to future shocks and an inclusive economic recovery. In this regard, the recent finalization of a “clean text” on e-signatures and authentication constituted a major breakthrough. Greater regulatory convergence on e-payments, e-contracts and paperless trading would significantly contribute to greater transparency and overcoming cross-border data flow restrictions.

As outlined above, a multi-disciplinary policy perspective is useful to comprehend the potential synergies and benefits to be gained from efforts under way to update the WTO rule book, meet current and future health, economic and social challenges, enhance the predictability of global supply chains, and create a level playing field in agricultural trade.

05 May 2021

The storage of grains has an important food security dimension. A new AMIS paper reviews recent trends in grain stockholding; discusses the two main purposes for holding stocks; describes the difficulties in measuring stocks, especially as regards deriving internationally comparable data; and outlines the economic importance of stocks as a determinant of international food price volatility.

22 Apr 2021

Mexico will be the new Chair of AMIS, taking over responsibilities from the European Union at the next meeting of the Global Food Market Information Group in June. Represented through Ms. Adriana Herrera, Mexico was unanimously elected by fellow country focal points at the 10th session of the AMIS Rapid Response Forum.

As a G20 member, Mexico has been engaged in the development and consolidation of AMIS “towards becoming a reliable mechanism to provide information on key food commodities”, Ms. Herrera explained. By taking over the chairmanship, Mexico seeks to further strengthen open dialogue between countries and collaboration in the areas of market information and transparency.

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