Commodity Prices Perspectives and Challenges for the Monetary Policy

Transcription

1 Commodity Prices Perspectives and Challenges Laura Cuccaro VI Meeting of Monetary Policy Advisors Bogotá, Colombia, 8-9 April 21

2 Agenda (1) Economic and social importance of agriculture for Latin America (2) Commodity prices recent developments and perspectives (3) Challenges for the monetary policy 2

3 Agricultural production in Latin America has grown strongly during the last decade Agricultural production Source: FAO < >5 No Data (% chg. from 1997 to 27) 3

4 Agricultural GDP Commodity Prices Perspectives and Challenges and for some countries of the region still represents an important portion of their GDP Guat em ala Par aguay Ecuador 1.6 Colombia Cost a Rica Peru Uruguay Chile Dominican Republic Latin America Br azil Argentina Venezuela Mexico Sour ce: FAO % of total GDP

5 Latin America s agricultural exports represent a large percentage in total exports Agricultural exports (as % of total exports) Source: FAO No Data (27) 5

6 and for some countries, in terms of their GDP Exports of agricultural, fishery and forest products Commodity Prices Perspectives and Challenges Par aguay 19.1 Uruguay Chile Argentina Ecuador 9.4 Guat em ala 8.4 Bolivia 6. Latin America Peru Br azil Colombia 2.9 Dominican Republic 2. Mexico Venezuela % of total GDP Sour ce: FAO

7 In addition, several countries have a high share of agricultural population Agricultural population Commodity Prices Perspectives and Challenges Guat em ala 52 Par aguay 4 Cost a Rica 37 Ecuador 35 Dominican Republic 32 Peru 29 Colombia 26 Mexico 23 Br azil 15 Chile 12 Argentina Uruguay Venezuela % of total population Sour ce: FAO

8 Finally, the Latin America s contribution to the world agricultural GDP is important Agricultural GDP Br azil 3.2 Mexico 1.9 Argentina 1.3 Colombia.8 Chile Venezuela Guat em ala Peru Ecuador Dominican Republic Par aguay Cost a Rica Uruguay % of world agricultural GDP Sour ce: FAO

9 In Argentina, agricultural sector production has responded strongly in the last 15 years million tons. Gr ain har vest 12 1 million tons Soybeans Corn W heat Cereals Oilseeds /7 27/8 28/9 29/ /8 1982/ / / / / /98 2/1 23/4 26/7 29/1 Source: MAGyP and USDA 9

10 ...led by the rise in soy crop area and by the higher yields observed in corn and wheat Contribution to production growth (29/21 vs. avg. 199/) million of tons Sour ce: SAGPyA Corn Soybean W heat Soybean Corn W heat Production, crop area and yield growth (29/21 vs. avg. 199/) Production Yield Area Others % Source: BCRA from SAGPyA data

11 During the beginning of this decade soft and hard commodity prices have exhibited a steep increase =1 5 Ener gy Agriculture Metals and minerals Commodity Prices (in current US dollars) 2= Jan-8 Jul -8 Jan-9 Jul -9 Jan-1 Dec-71 Oct -77 A ug-83 Jun-89 A pr-95 Feb-1 Dec-6 Source: BCRA from Bloomberg, W orld Bank and IMF 11

12 Expressed in other currencies the increases are still substantial, but below their 7 s and 8 s levels 6 5 2=1 Ener gy Agriculture Metals and minerals Commodity Prices (in constant SDR*) 2= Jan-8 Jul -8 Jan-9 Jul -9 Jan Dec-71 Oct -77 A ug-83 Jun-89 A pr-95 Feb-1 Dec-6 * Deflated by weighted average CPI of SDR currencies (dollar, euro, yen and pound sterling) Source: BCRA from Bloomberg, W orld Bank and IMF 12

13 The price boom have been also accompanied by higher volatility than in the previous periods 1 % 93.1 Commodity Prices Yearly Growth. Standard Deviation 8 7's 8's 9's 's Ener gy Agriculture Met als and Miner als Source: BCRA from World Bank 13

14 Key fundamentals behind commodity prices Demand for grains Structural factors Demand for bio-fuels Production capacity Stocks Medium-term factors Cost Short-term factors Regulation Climate Commodities as financial assets 14

15 The soaring commodity prices are connected with their own fundamentals, where high supply has been over passed by demand Soybean global demand and supply billion tons 27 USD 6 Soybean ending stocks and prices billion tons 7 Pr ice 235 Demand 5 Ending stocks (right axis) 58 Supply / / /23 28/9* 199/ / /23 28/9* Sour ce: USD A *: 28/29 and 29/21 estimated 15

16 The soaring commodity prices are connected with their own fundamentals, where high supply has been over passed by demand (II) billion tons 9 Corn global demand and supply USD 25 Corn ending stocks and prices billion tons 2 8 Demand 2 18 Supply Pr ice 12 Ending stocks (right axis) 4 199/ / /23 28/9* Sour ce: USD A 1 199/ / /23 28/9* *: 28/29 and 29/21 estimated 16

17 The soaring commodity prices are connected with their own fundamentals, where high supply has been over passed by demand (III) billion tons 7 W heat global demand and supply USD 36 W heat ending stocks and prices billion tons Demand 29 2 Supply / / /23 28/9* Sour ce: USD A Pr ice Ending stocks (right axis) / / /23 28/9* *: 28/29 and 29/21 estimated 17

18 Agricultural prices have also been influenced by the development of bio-fuels Biofuels production A ver age % 29* % Biodiesel 218* A ver age % Ethanol 29* % 218* billion liters Source: FAO - OECD *: Forecast 18

19 Other factors that have influenced prices include production and transportation costs, as well as investment in infrastructure 1,2 Jan-2=1 Nominal agricultural costs (current US$) 1, Crude oil (WTI) Shipping (Baltic Dry Index) 8 Fertilizers (W orld Bank Index) Mar -2 Mar -3 Mar -4 Mar -5 Mar -6 Mar -7 Mar -8 Mar -9 Mar -1 Source: W orld Bank and Reuters 19

20 Some temporary factors, like speculative demand, have also an impact, adding volatility to commodity prices 45 % Non commercial agricult ural cont ract s (% total world supply*) Soybean Corn W heat Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 (*) Includes total production plus begenning stocks Source: BCRA from USDA and CFTC data. 2

21 In Latin America, as a result, net commodity exporter countries registered historical current accounts surplus and higher terms of trade % of GD P 3 2 Latin America. Current Account and Terms of Trade CA Average:.93% of GDP ToT Average: 2.4% y.o.y. chg. y.o.y. % chg. for ecast Current Account Terms of Trade (right axis) Sour ce: IMF

22 In this context, there was a process of international reserves accumulation and several nominal FX were appreciated Lat in America. Int ernat ional reserves and select ed nom inal exchange rat es* 1994= International Reserves (right axis) Brazilian Real Argentine Peso Chilean Peso Mexican Peso Colombian Peso % of GD P *: currency per USD Source: ECLAC and Datastream 22

23 As in the majority of the economies, rising food prices have boosted headline inflation in many Latin America s countries % y.o.y Br azil Consumer price index % y.o.y. 2 CPI total 15 CPI total CPI food 1 CPI food Chile % y.o.y Mexico 15 CPI total 1 CPI food 5-5 % y.o.y Colombia CPI total 3 CPI food Sour ce: ECLAC

24 In Argentina, commodities and the effects of the economic activity have too generated inflationary pressures 24 % Pr ice indexes (y.o.y. chg.) % 8 Prices structure Other goods and services Educat ion 6.3% Food & beverages 4.3% excluding meat Recreation 27.9% % Transport and F & B 37,9% communications % 6 2 Medical care 5.6% Housing services & operations 4.9% Shelter 12.1% Apparel 7.3% Meats 1.% GDP deflator Private consumption deflator W holesale price index Commodities prices in $ (IPMP; right axis) -2-4 Q1-4 Q4-4 Q3-5 Q2-6 Q1-7 Q4-7 Q3-8 Q2-9 Q1-1* IPMP: BCRA Commodity price index * data until February 24

25 Sustaining non-inflationary growth in an environment characterized by high commodity prices remains the key policy challenge facing. The inflation impact of food price increases is a particular concern, especially for emerging economies. Commodity Prices Perspectives and Challenges Challenges Large fluctuations in prices can have a destabilizing effect on real exchange rates. A managed floating exchange rate regime is recommended, allowing to monetary authorities build liquidity buffers as a countercyclical policy. Improvements in local financial system are required to channel capital inflows towards productive uses and to 25

26 The Argentina s monetary framework is based on the following scheme: Managed floating exchange rate regime onetary policy based on the control of monetary aggregates nternational reserves accumulation egulatory and supervision policies imed at strengthening the financial system and fostering financial intermediation Goals: Guarantee sustainable growth Provide Monetary and Financial Stability Minimize External Vulnerability 26

27 Thank you