Farmers harvest a wheat field near Melitopol in Ukraine. Wheat, soybean, sugar and corn futures have fallen from March highs back to prices seen in early 2022.
Olga Maltseva Afp | Getty Images
Food prices fell significantly in July from the previous month, particularly wheat and vegetable oil costs, according to the latest figures from the Food and Agriculture Organization of the United Nations.
But the EBT said that while the fall in food prices “from very high levels” is “welcome,” there is doubt as to whether this good news will last.
“Many uncertainties remain, including high fertilizer prices that could affect future production prospects and farmers’ livelihoods, a bleak global economic outlook, and currency movements, all creating pressures serious effects on global food security,” said FAO chief economist Maximo Torero in a. press release.
The EBT’s food price index, which tracks the monthly change in global prices of a basket of food commodities, fell 8.6% in July from the previous month. In June, the index fell just 2.3% month on month.
However, the index in July was still 13.1% higher than July 2021.
Prices in the short term may fall more, if futures are anything to go by. Wheat, soybean, sugar and corn futures have fallen from March highs back to prices seen in early 2022.
For example, wheat contracts closed at $775.75 per bushel on Friday, down from a 12-year high of $1,294 in March, and around the $758 price set in January.
Why prices fell
Analysts cited a combination of both demand and supply causes for the slide in food prices: a much-anticipated agreement between Ukraine and Russia to resume grain exports through the Black Sea after months of blockade; a better than expected crop harvest; global economic slowdown; and the strong US dollar. To see also : From Rocket Science, Beginning a Revolution in Food Delivery Packaging.
Rob Vos, director of markets, trade and institutions at the International Food Policy Research Institute, told the news that the United States and Australia are set to deliver a bumper wheat harvest this year, which will improve supply since the shipping from Ukraine and Russia. to cut
The higher US dollar also lowers the price of staples, since commodities are priced in US dollars, Vos said. Traders tend to ask for lower nominal dollar prices on commodities when the greenback is expensive.
The widely United Nations-backed deal between Ukraine and Russia also helped cool the market. Ukraine was the world’s sixth largest wheat exporter in 2021, accounting for 10% of the global wheat market share, according to the United Nations.
Ukraine’s first grain shipment – 26,000 tons of maize – since the invasion left the country’s southwestern port of Odesa last Monday.
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Russia fired a missile at Odesa just hours after the UN settlement in late July.
And shipping and insurance companies may still think it’s too risky to ship grain out of a war zone, Vos said, adding that food prices remain volatile and any new shock could cause more price surges. more.
“To make a difference it is not enough to get a few shipments out, but at least 30 or 40 per month to get the grains that are already stored in Ukraine, as well as the harvest of the coming harvest,” Vos said.
“To help stabilize markets, the market must also be fully maintained during the second half of the year since that is the period when Ukraine makes most of its exports.”
Even with the existing agreement, the destruction of Ukraine’s arable land may continue “as long as the war continues,” leading to an even smaller crop yield this year next, Carlos Mera, head of agricultural commodity market research at Rabobank, told CNBC. “Street Signs Europe” last week.
“Once this [grain] corridor is over, we may see more price increases in the future,” Mera said. Consumers could also see further price increases as there is usually a lag of three to nine months before a movement in commodity prices is reflected on supermarket shelves.
Then there is pressure to export a lot of grain as quickly as possible from a war zone.
“It’s time for us to work again. I don’t see us exporting two [to] five million tons per month from the Black Sea ports,” John Rich, executive chairman of Ukrainian poultry giant Myronivsky Hliboproduct ( MHP), said CNBC’s “Capital Connection” on Monday.
“People get hungry, at the end of the day, very quickly after a week.”
In a note published earlier this month, analysts of the credit rating agency Fitch Ratings wrote that a possible increase in fertilizer prices, which fell recently – but is still double that of 2020 – could increase grain prices again.
Russia’s restriction of gas supply has led to a rise in European natural gas prices. Natural gas is a key ingredient in nitrogen-based fertilizers. La Nina weather patterns could also affect grain harvests later this year, they added.
And the fall in food prices is not good news. Part of the reason staples have become cheaper is that traders and investors are pricing in fears of a recession, analysts said.
The global manufacturing purchasing managers’ index has declined, and the US Federal Reserve appears to want to raise interest rates to curb inflation even if it prompts a recession, Fitch staff wrote.
Food staples
Cereal prices, which includes wheat, fell 11.5% month on month, the FAO index showed. To see also : The United States Speaks Clearly About Russia’s War in Ukraine. Wheat prices specifically fell 14.5%, partly due to the reaction to the Russia-Ukraine grain market, and a better harvest in the Northern Hemisphere, the EBT said.
Vegetable oil prices fell 19.2% month-on-month – a 10-month low – partly due to ample palm oil exports from Indonesia, lower crude oil prices, and a lack of demand for sunflower oil.
Sugar prices fell 3.8% to a five-month low amid declining demand, a weak Brazilian real against a green backdrop, and increased supply from Brazil and India.
Dairy and meat prices fell by 2.5% and 0.5% respectively.
