Commodity price observatory 1/2015

11 February 2015 Off By Pastaria

Pastaria’s four-monthly feature on the prices of the main raw materials used by pasta manufacturers.

by Centro studi economici Pastaria

In the last part of the year, the primary new aspect on international commodity markets was the abrupt turnaround in oil prices. The downward movement seen in the last quarter of 2014 reduced crude oil prices by nearly 50%, with the Brent price—the European benchmark—down to close to $50 a barrel, compared with the over $100 this past summer.

It should be noted that the drop in price was partially offset by the weakening of the euro against the US dollar, with the exchange rate between the two currencies below the 1.19 level. Nonetheless, the effect of the price drop was dramatic, despite the variation in the exchange rate. Now the question is whether the current oil price can be sustained considering the spinoffs the low prices are causing on a number of major economies, in particular Russia, for which energy products represent a large part of their national income.

On the other hand, low-cost crude oil represents an unexpected boost for those countries, such as Italy, with a structural dependency on foreign energy supplies. The entire manufacturing sector (and not only) benefits because cheaper oil could result in advantages, above all in terms of competitiveness and reducing production costs.

In terms of the food sector, as expected, the rising price of wheat, especially regarding the durum wheat market, has driven the price of some agricultural commodities higher. In November, the Commodity Food Price Index prepared by the International Monetary Fund jumped 1.4% compared with October levels, although the year-on-year comparison remains negative by about 6 percentage points. Triggering the price rises was the downward revision of estimates of world grain stockpiles, the particularly disappointing yields of the durum wheat harvest (including in Italy) and the uncertainty connected with developments in the crisis in the Ukraine with the corollary of sanctions and reprisal measures that have interrupted most of the commercial trade between Europe and Russia.

It should be noted that the FAO index in December showed a temporary turnaround, of 1.7% in a month, and on the basis of the yearly average, according to this UN body, food commodity prices were down 3.7% compared with 2013.

Although partially affected by the upward movement in grain markets, the future for the food sector does not seem to have changed as a result of this underlying basic trend. The entire dairy sector confirmed the general conditions of weak prices which are destined to remain negative even in the early part of 2015.

The sharp increases in durum wheat, with current values over 40% higher than those of a year ago, would seem destined to decrease, although slowly. The market in Italy does not seem capable of absorbing prices higher than 400 euros per ton, levels that are too high and would result in triggering a rise in pasta prices in a phase that is anything but favorable to consumption.

As a result, short-term developments suggest a scenario of gradual diminishing of the inflationary impulses on the durum wheat and semolina circuit. No tension in store for zootechnical products where a further reduction in the pork sector can be expected, a sector which more than others is feeling the effects of the export embargo to Moscow.

Due to the sharp drop in production (50% in Spain and 35% in Italy), the price of olive oil has nearly doubled over the space of a year, but should slowly decrease, a process already seen in December, despite the continued high price level. No major changes are foreseen for beef and eggs, both products being sold for 7-8% less than last year’s prices.

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