Agricultural Commodity prices since the mid 1990’s

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A suggestion was made recently for an article to look at the change in price levels across a range of agricultural commodity prices during the past two decades. Such a comparison throws up some challenges which this article looks at.

In this analysis, the commodity prices have been simply deflated (adjusted for inflation) for both the graphics and table. The 2018 paper by David Jacks (read here) outlines a comprehensive look at real commodity prices which involves breaking the price series into trends, cycles and boom/bust episodes. Jack’s paper highlights the impact of long-run (70+ years) trends and long-run cycles (50-70 years) on commodity prices, in addition to the boom/bust episodes that generally grab our attention.  David Jacks also provides a range of historic commodity price series on his website (see more here).

The boom/bust cycles identified by David Jacks pose a problem for comparing price movements between commodity prices. Where do you start or, more pertinently, who don’t you start? If the comparison begins and/or ends in a boom or bust episode, the comparison is biased. Jacks mentions in his paper that, “perceptions of the trajectory of real commodity prices are vitally influenced by how long a period is being considered”.

Figure 1 shows the annual average deflated Australian sale yard red meat prices series (EYCI, cow, mutton and lamb) from the mid-1990s onwards relative to an average price for 2003-2005. Table 1 accompanies the graphics in this article, showing the price variation for the nominated years relative to the average for 2003 to 2005.

Mutton and lamb are good examples of how boom/bust episodes can bias analysis. In Figure 1 even in the late 1990s sheep meat prices were still low as the flock was actively shrinking (a process which began at the collapse of the RPS in the early 1990s). While prices in recent years have fallen considerably, and are now below 2004 levels, mutton remains twice the (deflated) price from the mid-1990s and lamb is 57% higher.

Figure 2 shows wheat and canola delated Australian price series, and Figure 3 repeats the exercise for a range of fibre prices (merino, 28 micron and cotton).

Until 2022 there were clear upward trends in the red meat prices, especially sheepmeat. Jacks notes in his paper that soft commodities, including grains, have generally downward long-term trends in price. The trends seen in Figure 1 for red meats are a function of the time period selected. Figure 2 shows trends for wheat and canola closer to those noted by Jacks.

Finally, in Figure 3, the trends for cotton and 28 micron are clearly falling, although the 28-micron trend is biased as it is in the middle of the mother of all busts. In contrast, the merino prices have a slightly rising trend, which is a function of changing quality (the average merino fibre diameter becoming finer) during the three decades.

There are a couple of points to note if the reader looks at the David Jacks deflated price series.

1.    The lamb price series used is the wholesale UK Smithfield frozen series which is markedly different (very much higher through the mid-20th century) to Australian saleyard series

2.    The Jacks paper uses prices in US dollar terms, deflated by a US CPI. This seems to give a different result (a higher real price level in the first half of the 20th century) to prices in Australian/UK pounds and deflated by Australian CPI.

What does it mean?

Whereas 2019 was a very good year for Australian agricultural commodity prices in relation to 2003-2005, in 2024 prices are generally lower. Wheat is the only commodity with a deflated price above the 2003-2005 level. The EYCI, canola and cotton all are close to 2003-2005 deflated levels.

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Key Points

  • David Jacks finds a falling price trend for soft commodities when looked at in the long run (70+ years).
  • Australian saleyard red meat prices have been trending higher in deflated terms from the mid-1990s to 2022. Now we wait to see where prices will settle on their recovery from 2023.
  • Australian wheat and canola prices have had little if any trend in recent decades.
  • Fibre prices have trended lower in deflated terms in recent decades, except where quality has changed as with the average merino fibre diameter.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: RBA, MLA, Crop Forecasters, Profarmer, AWEX, Cotlook, David S. Jacks, ICS, Mecardo

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