The start of a calendar year is always a good time to take stock of the prospects for the coming year, and based on forecasts and data it seems there is less certainty and bullishness about agricultural commodity prices in the year ahead than there was twelve months ago.

The latest USDA crop forecast released on January 12th forecast slightly lower cereal grain prices for 2012 on the back of reduced consumption and slightly higher production levels, meaning that world stock are forecast to increase. These changes are a reflection of both very good production conditions in eastern Europe over the past year, increased production in response to higher prices, and reduced demand arising from economic uncertainty. 

Goldman Sachs are perhaps a bit more bullish in their forecasts for some crops, although less positive on the outlook for wheat prices. Despite the higher USDA grain stock projections, they are still bullish for corn and soybean prices based on poor seasonal conditions in South America, low stock levels and continuing growth in Chinese demand.

Forecasts released late last year by Morgan Stanley were generally more positive for wheat, but even stronger for coarse grains and livestock - especially beef. They did, however, issue a caution that the upside potential for agricultural commodity prices was limited, given the fragile state of northern hemisphere economies.

The FAO's world food price index declined 2.4% during December, and was down 11% at the end of 2011 from its peak in February. The biggest falls recorded were in cereals and to a lesser degree fats and oils, with dairy prices essentially remaining steady over the twelve months and meat prices increasing. A major factor in the lower prices for cereals was the record production levels in 2011, showing that despite the doomsayers, farmers will respond when prices make it profitable to do so. The FAO forecast for 2012 was dominated by the word "uncertain". 

Interestingly, both the FAO and the IMF commodity price indices highlight that, despite the slight recent falls, agricultural commodity prices are still at or near long-term record high levels.

The overall consensus appears to be that cereal prices do not have a great deal of upside in 2012, but the prospects for coarse grains and livestock appear generally positive. This suggests the fallout from the global financial crisis and the continuing economic turmoil in Europe may not be too severe - but of course for Australian farmers this all depends on the exchange rate for the Australian dollar.