Singapore, Jan. 14 - Surging biofuel demand, reduced crop acreage and declining stocks have driven up food, feedstuff and beverage prices by 26.7% in 2007, which should support soft commodity prices this year, said a February forecast by the Economist Intelligence Unit in London.
The food, feedstuff and beverages index used by the unit is forecast to grow 8% this year as markets "are expected to remain tight."
"Large investments in biofuel capacity and strong demand for feed and food use have left both the oilseeds and grain markets thinly stretched," it said.
Market deficits have resulted in declining stock levels and prices are estimated to have risen by 37.9% for oilseeds and 32.5% for grains in 2007.
Both indexes are estimated to rise by around 10% in 2008 as output, coupled with depleted stock levels, continues to struggle to meet demand.
The forecast average price for corn this year is $182.5 per metric ton, up from $164.5/ton in 2007; wheat is forecast at $292.50/ton, up from $264.20/ton a year ago.
Prices may ease modestly in 2009 if weather conditions allow supply to make a full recovery, said the report.
The production of another form of biofuel, cane-based ethanol, is likely to help revive sugar prices in 2008-09, which plummeted by around 33% in 2007 from a peak of over 18 cents per pound in 2006.
The unit forecasts sugar prices to average 10.3 cents/lb this year, up from 9.9 cents/lb last year and forecasts an even higher price of 10.9 cents/lb in 2009.
Beverage prices, such as coffee and cocoa, rose by around 12% in 2007, marking the sixth consecutive on-year increase on tight and unstable supply.
Depleted stocks for robusta coffee and uncertainty about the outlook for the Brazilian crop are supporting coffee prices, it said. While African cocoa crop shortfalls due to dry weather, are boosting cocoa prices, said the report.
The unit forecasts robusta coffee to average 88.5 cents/lb this year, up from 86.4 cents/lb in 2007.
However, it expects supply to rise to match demand this year, leading to an overall decline in beverage prices by 1.2% this year, followed by a further 7% decline in 2009.
Supply shocks such as the arrival of another El Nino global weather event or another civil war in the cocoa-producing Ivory Coast could "seriously alter production and price prospects," it said.