At the turn of the year, the markets were betting on significantly lower prices in 2012.

The thinking was that higher production, coupled with lower demand as a result of the downturn in many economies, would leave global stocks in a much healthier state than in 2011. Six months on, those predictions appear to have come true - mostly.

For soft commodities, such as cocoa and coffee, prices have indeed fallen significantly. At £1,600/tonne - 32% less than in 2011 - cocoa butter is seriously cheap at the moment, while Arabica coffee, at £2,272/tonnes, is down by 35% year-on-year, with Robusta down 12% to £1,395/tonne. Prices have also fallen for sugar, largely driven by increased production in Thailand, Russia and India.

For the grain markets, the picture has been more mixed. US maize - which rocketed in price in 2011 - has fallen by 17% since the beginning of the year and is now 24% cheaper year-on-year on the expectation of higher supply and concerns that the shrinking US cattle herd may require less maize for feed in the future. But Italian durum wheat has risen by 11% year-on-year and German rye is up 5%.

Vegetable oil prices have also been fairly inconsistent, with rises for palm and rapeseed oil countered by falls in soyabean, olive and sunflower oil. Despite persistent drought reports in South America, global vegetable oil supply is meeting demand, keeping a lid on prices.

Whether prices will remain below 2011 levels will depend on this year’s harvests, which are forecast to be reasonably good, and on whether we see a return of speculators. There is one significant downside to low prices, though - they will not incentivise growers to grow more once this season is done, which means the markets could be storing up the potential for trouble ahead.

A return to higher prices could be on the cards all too soon.

Commodity prices

As we take stock of how the first six months of 2012 have played out in the commodities sectors (see above), all but two of our 10 commodity picks show year-on-year price decreases. What of the exceptions? Thai rice is up by nearly 30% year-on-year and climbed a further 9% in the past month, but prices are forecast to ease soon on the expectation of improved global stocks, with one rice expert predicting prices could fall by 14% by the end of July.

At £2,374/tonne, Kenyan tea prices are 15% higher than this time last year but here, too, good news is on the horizon. The country’s meteorological department is forecasting plenty of rain, which should boost this year’s crop prospects, taking pressure off prices.

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