The World Bank has just released its latest Commodity Market Outlook and the short version of the report is that commodity prices should “ease marginally” this year. But as the report notes in its first sentence, it was the volatility that hurt in 2012.

The good news is that the World Bank sees crude oil prices down 3% to an average of $102 a barrel and food prices down 3% as well. There are risks to these prices, of course, and when one of those risks appears on the horizon, commodity prices go up. When the risk recedes or fails to materialize, the price drops. That’s volatility for you.

Looking at nominal prices, with 2005 equal to an index of 100, energy’s 2012 index was 187 and the forecast calls for an index of 184 in 2013 and 2014. Among the agricultural sub-scores, the grains index was 244 in 2012 and is expected to decline to 239 this year and 225 next year. Fertilizer prices are expected to drop from their 2012 index of 259 to 245 this year and 232 in 2014.

Looking at the drivers of food prices, the World Bank notes that most of the drivers of the post-2004 boom in commodity prices are still a threat. The top macroeconomic drivers are energy costs, up 216% since 2005, and commodity investment funds, up 305%. The top sectoral drivers are the use of farm products for biofuel production, up 286%, and fertilizer prices, up 200%. Natural disasters have increased by 19%, and these play no small role in food production.

The Commodity Market Outlook report is available here.

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