Tuesday, August 12, 2008
Declining Food and Fuel Prices to Help South Asians
Wheat is down from a record high of $900 per ton earlier this year to $300 per ton today. For December 2007 delivery, Pakistan paid an estimated import price of $380-400 per ton, exclusive of transportation. Earlier in April-May 2007, Pakistan had exported wheat at the then-prevailing $225 per ton.
The rising oil import bill has been the biggest budget buster for Pakistan and other developing nation which must import oil. Pakistan's dollar reserves have dramatically dropped from $15.5b to $10.5b this year. The fact that oil is down from the peak of $145 a barrel to $114 a barrel is good news for Pakistanis and South Asians. Since June 30, oil on the New York Mercantile Exchange has fallen 18%, and natural gas has sunk 37%, to $8.349 a million British thermal units.
The pullback has spread to other commodities as well. Since the end of June quarter, gold is down more than 11%, and several industrial metals also have tanked. Agriculture has pulled way back, with a 31% drop for corn, a 24% drop for soybeans and a 5.9% drop for wheat.
While the demand has eased off slightly due to recent record prices, the biggest impact on commodities has been due to the threat of U.S. Congressional action, the credit crunch and bearish sentiments in noncommercial speculation by the likes of hedge funds. So-called noncommercial oil traders, which include players such as hedge funds, have been reversing once-bullish bets. Wall Street Journal says that independent energy-market analyst Stephen Schork pointed out Monday that as of Aug. 5, according to regulatory data, noncommercial traders moved to their largest bearish view in oil futures since February 2007.
The credit crunch has made it harder for such traders to carry bullish commodity futures bets as the market has turned, because of the collateral, or margin, traders must post to stay in the game. What's more, many are bailing out of positions as the U.S. Congress debates a legislative overhaul of commodity markets that could reduce the size of bets speculators can make, according to Wall Street Journal.
The recent strength of the US dollar has contributed in bringing down food and fuel prices as well. The US dollar has risen to a 24-week high against the euro and and stayed near a seven-month high against the yen.
These recent declines of world food and fuel prices should help ease retail inflation in Pakistan which has surged by 24.33 percent over the same period last year. The food prices have risen by 33.81 percent, significantly eroding the purchasing power of the people, according to Federal Bureau of Statistics. Wholesale prices in India have also grown by 11.89% in the year to the end of June, the fastest rate since the measure began in 1995.