Have global food prices now reached a trough?

Global food prices fell to their lowest level since September 2009 in May according to the UN Food and Agriculture Organisation’s (FAO) food price index. The index fell 1.4% from April and is now down 22.4% since May 2014.

Chart: UN Food Price Index

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Source: UN FAO

High global production, cheaper crude oil and the strong US dollar (particularly against many food producing economies, e.g. Brazil) have pressured food prices over the past year.

Related article: Why are agricultural commodity prices so weak in 2015?

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Physical crude market a tenuous anchor for crude futures prices

“Like pushing a rock up a hill”

That’s how some trader’s view the current disconnect between the physical market for crude oil and the futures market with speculators pushing futures prices higher while the physical market remains moribund.

Before continuing it’s important to make the distinction between the physical market for crude and the crude futures market.

Physical (also known as cash) market prices are determined by the supply and demand for physical crude. Here traders buy oil from the producer and sell it to the refiner, for immediate delivery. Physical buyers and sellers have a direct pulse on the market and may feel immediately when it is well supplied, or not.

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Goldman Sachs forecasts $55 per barrel oil in 2020

Goldman Sachs now expect Brent crude prices to remain between $58-$65 per barrel during 2015-19 before falling to $55 per barrel by 2020.

Global oil markets are likely to face three supply drivers over the medium to long term: 1) Continued rise in US shale productivity; 2) sustained OPEC growth (Iraq/Saudi Arabia); and 3) new projects, which would add to deflationary pressures, in our view.

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The bank had said that the recent rally in crude futures is premature given that the market remains “well oversupplied”, despite the perception of improving fundamentals.

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