Macquarie launches proprietary agricultural price index to forecast food price inflation

Macquarie Commodities Research, part of Macquarie Group (“Macquarie”) (ASX: MQG; ADR: MQBKY), today announced the creation of MacPI, the Macquarie Agricultural Commodity Price Index.

The MacPI is a new benchmark for the performance of agricultural and soft commodities and will also provide forecasts for the price of food raw materials, in order to indicate the level of future food inflation. It has been designed for those following macro-economics and food prices and those involved in the agricultural services sector, combining Macquarie’s experience of analysing the agricultural and soft commodities markets and its expertise in forecasting.

The index tracks the price of futures contracts for 28 agricultural commodities traded on international exchanges. It has been constructed using a consumption-weighted rather than a trade-weighted methodology to reflect the importance of every commodity in terms of global consumption. Based on current levels, the MacPI forecasts:

• Trading in sugar and coffee to be bearish over the next six months as structural surpluses persist. Sugar will perform better in 2014 and 2015 as production slows, and cocoa will continue to do well due to market deficits in the next two seasons
• Prices in the grains and oilseeds complex to fall but recover in late 2014 and 2015 as corn acres are lost and converted to soybean planting instead
• A headline decline of 11% in food and agricultural prices in 2013, largely attributable to falls in animal feed prices (down 3.7%) and vegetable oil prices (down 2.5%). Palm oil and cocoa prices the only constituents to rise during this period
• A further 10% decline in the MacPI in 2014 as animal feed components continue to fall in price (fall of 6.8%)
• Overall food deflation to therefore continue until 2015, when there will be a modest rebound of 2.8% in the index, with all commodity groups except for staple grains turning bullish by the end of 2015

Kona Haque, an analyst within Macquarie’s commodities research team commented: “The MacPI was created to fill a gap in the market. Macro-economists, food retailers and agricultural industrialists are continually monitoring trends in the cost of food inputs to assess the outlook for their sectors, but need informative and forward-looking data to do so. With the MacPI we are not only recording historic prices but forecasting them. It is intended to become a lead indicator that describes where food inflation is heading and suggest the health of the food and agricultural industries.”

Kona continued: “We expect food commodities prices overall to remain bearish for the next two years, barring adverse weather-related supply risks, and therefore for food deflation to continue until 2015. The index also reveals some interesting sub-plots, with cocoa one of the few products to perform well in the next two years.”

Macquarie’s commodities research team is dedicated to providing specialist metals, mining, agricultural and energy research and market intelligence. Rated as one of the top teams globally, Macquarie’s commodities research team works extensively for corporations, industry consultants and resource portfolio managers with exposure to the commodities markets. The team was also recently voted number one for Excellence in Agriculture and Softs and Excellence in Traded Commodity Markets for 2013 by Commodities Now, the multimedia resource for traded commodity markets.