Olga Malcheva | Afp | Getty Images Food prices fell significantly in July from the previous month, particularly the cost of wheat and vegetable oil, according to the latest data from the United Nations’ Food and Agriculture Organization. However, the FAO said that while the fall in food prices “from very high levels” was “welcome”, there were doubts whether the good news would last. “Many uncertainties remain, including high fertilizer prices that can affect future production prospects and farmers’ livelihoods, a bleak global economic outlook and currency movements, all of which are creating serious pressures on global food security,” said FAO Chief Economist Maximo Torero. Press release. The FAO food price index, which tracks the monthly change in global prices of a basket of food, 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 in July 2021. Prices in the near term may fall further if futures are willing. Wheat, soybeans, sugar and corn futures have retreated from March highs to prices seen in early 2022. For example, wheat contracts closed at $775.75 a bushel on Friday, down from a 12-year high of $1,294 in March and around the $758 price set in January.
Why did the prices drop?
Analysts cited a combination of both demand and supply causes for the drop in food prices: the closely watched Ukraine-Russia deal to resume grain exports via the Black Sea after months of a blockade; better than expected crop harvests. a global economic slowdown; and the strong US dollar; Rob Voss, director of markets, trade and institutions at the International Food Policy Research Institute, pointed to news that the United States and Australia are set to deliver this year’s wheat harvest, which will improve supply after shipments from Ukraine and Russia was limited. The higher U.S. dollar also lowers the price of commodities, as commodities are priced in U.S. dollars, Vos said. Traders tend to ask for lower nominal dollar prices of commodities when the dollar is expensive. The widely publicized UN-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 percent of the world’s wheat market share, according to the United Nations. The first shipment of Ukrainian grain — 26,000 tons of maize — since the invasion left the country’s southwestern port of Odessa last Monday.
Skepticism about the Ukraine-Russia deal
Global skepticism about whether Russia will hold up its end of the bargain hangs in the air. Russia fired a missile at Odessa just hours after the UN-brokered deal was reached in late July. And commodity and insurance companies may still think it’s too risky to ship grain from a war zone, Vos said, adding that food prices remain volatile and any new shock could trigger more price increases. “To make a difference, it will not be enough to take out a few shipments, but at least 30 or 40 a month to take out the existing grain stored in Ukraine, as well as the products of the upcoming harvest,” Vos said. “To help stabilize markets, the agreement should be fully maintained in the second half of the year, as this is when Ukraine exports most of its exports.” Even with the existing deal, arable Ukrainian land may continue to be destroyed “as long as the war continues,” resulting in even lower crop yields next year, Carlos Mera, head of agricultural market research, told CNBC products at Rabobank. “Street Signs Europe” last week. “Once this [grain] The runway is over, we may see even 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 the prices of goods appears on supermarket shelves market. Then there is the pressure to get enough grain out of a war zone as quickly as possible. “It’s time to get back to work. I don’t see us exporting two [to] five million tons a month out of these Black Sea ports,” John Rich, the executive chairman of Ukrainian poultry giant Myronivsky Hliboproduct (MHP), told CNBC’s “Capital Connection” on Monday. “Hungry people, at the end of the day, get hungry very quickly after a week.” In a note published earlier this month, analysts at credit rating agency Fitch Ratings wrote that a possible increase in fertilizer prices, which have recently declined — but are still double from 2020 — could cause prices to rise again of grains. Russia’s gas supply cuts sent European gas prices soaring. Natural gas is a key component of nitrogen-based fertilizers. La Nina weather patterns could disrupt the grain harvest later this year as well, they added. And falling food prices aren’t all good news. Part of the reason commodities have become cheaper is that traders and investors are pricing in recession fears, analysts said. The global manufacturing PMI has eased, while the US Federal Reserve appears determined to raise interest rates to curb inflation, even if it sparks a recession, the Fitch team wrote.
Basic foods
Cereal prices, under which wheat falls, fell 11.5% month-on-month, according to the FAO index. Wheat prices specifically fell by 14.5 percent, partly due to the reaction to the Russia-Ukraine grain deal and a better harvest in the northern hemisphere, FAO 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 percent to a five-month low in light of shrinking demand, a weaker Brazilian real against the dollar and increased supply from Brazil and India. Dairy and meat prices fell by 2.5% and 0.5% respectively.
