THE Food and Agriculture Organisation’s (FAO) Global Food Price Index presented a welcome picture of decelerating global prices from the peaks seen in the days and weeks after Russia invaded Ukraine, Wandile Sihlobo, the Agricultural Business Chamber’s chief economist, said yesterday.
However, various risks on the horizon needed monitoring as they could impact the price direction.
“We had two important data releases in the global environment these past two weeks; the FAO Global Food Price index for July 2022 and the USDA’s World Agricultural Supply and Demand Estimates report,” he said.
The former painted an encouraging picture of a continuous softening of prices, having deteriorated by 9 percent in July from June to 141 points. This marked the fourth consecutive monthly decline, undermined by softening in the prices of vegetable oils and grains.
The seasonal availability of grain supplies in South America following the harvest season, combined with the agreement reached between Ukraine and the Russian Federation to unblock Ukraine’s main Black Sea ports, had led to a resumption of grain exports from Ukraine.
“Nevertheless, the global food prices are nowhere close to the pre-war levels. The FAO’s Global Food Price is still 13 percent higher compared to July 2021. Other factors such as the reduced grains stocks in South America, rising demand for grains in China are also underlying drivers of relatively higher grain prices, in addition to the spillover of the Black Sea war,” Sihlobo said.
While the coming months could continue to show a relative decline in prices compared to levels seen in months after the start of the war, the price environment was unlikely to get to pre-war levels over the medium term.
He added that there were risks to the 2022/23 season with reports of yet another La Niña, which could weigh on South America's harvest, as this weather phenomenon typically led to a drier season in the region. Moreover, the reports of dryness in much of Europe and the US could also lead to a poor harvest in various regions.
Sihlobo said the global crop forecasters such as the International Grains Council and the USDA had not yet fully accounted for these weather changes.
“For example, in its August update, the USDA estimated 2022/23 global wheat production at 779 million tonnes. This is up by 1 percent from the previous month and roughly on par with the 2021/22 season harvest. With that said, the stocks could fall by 3 percent from the previous season to 267 million tonnes because of an uptick in consumption. Broadly, these data support generally higher commodity prices; hence we think the current decline in prices will likely be limited or not be a complete reversal to the pre-war levels.”
In the case of maize, the picture was said to be different with the USDA already forecasting a 3 percent annual decline in the 2022/23 global production, to 1.18 billion tonnes.
The IGC saw a decline in harvests primarily in the US, Ukraine, EU, and China. Consequently, the 2022/23 global maize stocks were currently forecast at 306 million tonnes, down 1 percent year on year.
Similarly, the 2022/23 rice global harvest was forecast to fall marginally by 0.3 percent from the previous season to 512 million tonnes. The US was primarily behind this decline in the global rice harvest due to heatwaves in various parts of the country, which had negatively affected agricultural activity over the past couple of months.
The stocks would likely fall by 3 percent from the 2021/22 season to 178 million tonnes. This was reflective of both the potential increase in rice consumption and the fall in the harvest.
For rice-importing countries such as South Africa, the potential decline in harvest meant prices could move sideways over the next couple of months and that there could be limited room for a further decline in the rice prices.
Soybean was the only crop whose production forecasts were quite robust. For example, the 2022/23 global soybean harvest was set to reach a new peak of 393 million tonnes, up 11 percent year on year. The expansion in plantings in the US, combined with an expected increase in area plantings when the season started in Brazil, Uruguay, and Argentina, were behind this expected large crop.
Sihlobo said that notably, one should keep in mind the points they made about the potential La Niña-induced dryness in South America and the heatwave in the US.
“These are important weather events that could undermine these positive harvest forecasts. If we apply the current data, the 2022/23 soybeans global stocks would amount to 101 million tonnes, up by 13 percent from the previous season. Such an improvement would add pressure not only on soybeans and their product prices but also across the vegetable oils market. The next couple of months will be vital for assessing whether this optimistic picture will hold or change,” Sihlobo said.
BUSINESS REPORT