As a follow-up to the January 2013 Global Economics Prospects [1] released three weeks ago, the World Bank’s Development Prospects Group has just published its Commodity Market Outlook [2]. The report notes that following a somewhat volatile 2012, most commodity prices will ease marginally in 2013. Crude oil prices, for example, are expected to average US$102/bbl, just 3 percent lower than in 2012. Agricultural commodity prices are also forecast to decline: food by 3.2 percent, beverages by 4.7 percent, and raw materials by 2.2 percent. Metal prices, on the other hand, are expected to rise slightly but still average 14 percent lower than in 2011. Fertilizer prices are also set to decline, by 2.9 percent, while precious metal prices will increase almost 2 percent.

The 2013 outlook is subject to numerous risks. In regards to crude oil, global supply risks remain from ongoing political unrest in the Middle East. A major supply cutoff could result in prices spiking above US$150/bbl. For metals, prices depend on economic conditions in China, which accounts for almost half of global metal consumption. Metal prices could decline substantially should conditions there deteriorate. On agricultural commodities—most importantly, food—weather remains a key risk. Given historically low stocks, a major adverse weather event would induce sharp increases in maize prices. Wheat prices may come under upward pressure as well. In contrast, the markets for rice and oilseeds are better supplied, and thus face limited upside price risks.

Among other issues, the commodity outlook notes that after ticking upward in 2008/09, commodity price volatility has moderated. The report also highlights the wide divergence in local price movements: for example, despite a 22 percent increase in global maize prices in 2012Q3, local prices fell in 8 of 21 developing countries for the same quarter. Finally, the report stresses the role that higher oil prices have played in the rise in most food prices.