With the global economic slowdown, the prices of various primary commodities have been taking a hammering, specially of those 'normal goods', which had scaled unprecedented heights in recent months. These, such as some food grains, metals, and crude oil, are now in a free fall.
At their dizzying highs, these prices were the cause of food riots in over three dozen countries, that was deafened only by the global uproar.
According to data released by the United Nation's Food and Agriculture Organisation (FAO), wheat, which was at $481.5 per metric tonne in March 2008, crashed to $272 per metric tonne by the first week of October 2008, dropping almost two-thirds. Primary food grain Rice had hit $772 per metric tonne during May 2008, have dropped almost fifty per cent to $412 per metric tonne.
Other agricultural commodities are also witnessing dropping prices. The price of soybean has dropped from its July 2008 peak at $586 per metric tonne to $371 per metric tonne. Similarly, Palm oil too has climed down from its March 2008 high of $1249 per metric tonne to $885 per metric tonne.
The latest FAO estimates that the primary reason fro the across-the-board drop in agricultural commodity prices are record harvests in most crops.
While the world's cereal output touched a new record of 2.2 billion metric tonnes, which is around five per cent higher than 2007, wheat production jumped around 11 per cent, mainly on account of a huge 25 per cent rise in Europe. Had it not been for the production declines in Argentina, Turkey, Iran, the number would have been even higher. Australia too reported a somewhat depressed harvest. Simultaneously, rice production has increased by around two per cent over last year's record harvest, and China has reported a record soybean harvest.
Though better harvests, followed by an eased supply have contributed to price reductions, future increases could be in the offing, mainly because global production and consumption almost outpace each other, and latest sowing data, which is representative of how much would be reaped later, shows a decline in area covered under wheat in western countries. Most predictions now say that though the near term looks good in terms of the downward trend, a slightly longer term view would reveal the difficult times ahead.
The price of crude oil, which hit a never-before $147 in July 2008, fell flat to $69 per barrel as of Thursday last week, dropping a steep 50 per cent in three months, mainly on account of declining demand caused by the economic slowdown, and the fear of a recession in the global economy.
Investment bank Goldman Sachs' analysts have revised its predictions about the price of crude as well. While as early as last month, Goldman analysts predicted crude at $115 a barrel in mid-December, which they now thing will be trading around $70.50 in January. They say the downward revision was a result of underestimating the ''depth and duration'' of the global financial crisis, and its implications for economic growth and commodity demand.
Earlier in the month, Merrill Lynch had also predicted crude averaging around $90 a barrel next year, which it had previously said would average around $107.
Goldman oil stock analyst Arjun Murti, who had earlier in the year predicted that crude would touch $150 to $200 a barrel sometime within the next two years, has also revised downwards his estimates for the commodity. He now predicts crude to be at around $75 a barrel next year, $35 below his previous estimate.
Reports suggest that Goldman's commodity team now believes that oil will average $86 a barrel in 2009, $37 lesser than its prior forecast. Last month, Goldman analysts had said that a "full-blown global recession" could bring oil prices down to $75, which the bank in its note on Monday said had become a reality.
Goldman still says that ''the point of maximum weakness'' for demand for the commodity is most likely happening now.
Data from the Energy Information Administration (EIA) showed that demand for oil in the US, the largest consumer of energy in the world, was lower by 8.6 per cent from 2007 figures for the past four weeks. In its short term energy outlook, the EIA said consumption in OECD countries is expected to fall by over 1.1 billion barrels per day in 2008.
For the US, daily consumption is stationary at the 1999 level of 18 billion barrels per day. The US consumes a quarter of the world's oil, and is heavily dependent on oil imports.
Bloomberg attributed the drop in the US oil consumption to a downturn in manufacturing activity, and cost cutting by families facing a financial crunch. It said that in the US, output from factories, mines and utilities had gone down by 2.8 per cent last month, which is the largest drop since 1974.
The prices of other metals are also said to be driving inflation worldwide. Gold prices which in the first quarter of 2008 had touched a record high of $927 per ounce, are down to around $830 per ounce as of September.
Copper increased to $8443 per metric tonne during the second quarter of 2008, but has now dropped 17 per cent to $6991.