Fall­ing prices no cause for panic

Agri­cul­tural com­mod­ity prices fell heav­ily dur­ing 2013. Made in PNG ex­am­ines what this means for Pa­pua New Guinea’s agri­cul­tural pro­duc­ers.


‘The out­look for de­mand and prices will im­prove in 2014.’

Soft com­modi­ties such as palm oil, co­coa and cof­fee were all swept up in the mid-2013 sell­ing that fol­lowed com­ments from the United States’ Fed­eral Re­serve Chair­man Ben Ber­nanke about ta­per­ing stim­u­lus of the US econ­omy. But, de­spite the sharp re­ac­tion in fi­nan­cial mar­kets, an­a­lysts say the medium-term out­look has not changed dra­mat­i­cally.

For Pa­pua New Guinea’s key agri­cul­tural ex­ports, changes in in­vestor sen­ti­ment can have rip­ple ef­fects through the com­modi­ties world, but the fun­da­men­tals of sup­ply and de­mand do pre­vail.

‘If there is bear­ish­ness in grain and oilseed prices, that in­flu­ences palm oil,’ Rabobank se­nior in­dus­try an­a­lyst Pawan Ku­mar told Made in PNG. ‘But the big­gest fac­tor for palm oil is the over­sup­ply that has been the case for the last 10 months or so.’

Palm oil stocks

Even though stock lev­els have de­clined some­what in key pro­duc­ing na­tions such as Malaysia, which would nor­mally help prices, palm oil prices re­mained flat be­cause of ex­pec­ta­tions of an­other strong pro­duc­tion cy­cle in the sec­ond half of 2013.

Ku­mar said China’s stock of palm oil im­ports was 55% higher in May 2013 than a year ago, and Chi­nese im­ports were likely to slow as the na­tion buys more soy­beans in com­ing months. The price of palm oil has slumped some 35% over the past year.

Co­coa to im­prove

Co­coa, an­other key com­mod­ity for Pa­pua New Guinea’s farm­ers, should see prices im­prove, ac­cord­ing to Ku­mar.

‘Co­coa is the only com­mod­ity at the mo­ment which is look­ing bullish, the rea­son be­ing that de­mand is slightly higher than pro­duc­tion,’ he said.

The cur­rent crop in In­done­sia, which is fore­cast at 435,000 tonnes or just over 10% of global pro­duc­tion, is ex­pected to de­cline slightly from last year due to dis­ease and other is­sues, while de­mand con­tin­ues to rise. PNG farm­ers may be well placed to take ad­van­tage of higher prices, if they can ad­dress pest-re­lated is­sues (see page 30). The moves in fi­nan­cial mar­kets were more dra­matic than many econ­o­mists ex­pected.

Just as ex­tra cash pumped into the bank­ing sys­tem over re­cent years has helped to fuel re­cov­ery in stock mar­kets and com­modi­ties prices, in­vestors now fear that a re­duc­tion in liq­uid­ity will slam the brakes on the US econ­omy, and lead to a wider global slow­down.

‘Don’t panic’

Dra­matic moves

But the knee-jerk re­ac­tion that hit mar­kets from Wall Street to Tokyo and Syd­ney may have been over­done, ar­gues Syd­ney-based West­pac se­nior econ­o­mist Justin Smirk. He says the out­look for de­mand and prices will im­prove in 2014. Rather than a long-term down­trend in com­modi­ties mar­kets, Smirk ar­gues that volatil­ity will be­come the norm as un­cer­tainty over the strength of re­cov­ery per­sists.

‘What we are go­ing to see is swings be­tween eu­pho­ria and de­pres­sion.’

PNG co­coa

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