Unsplash | Unlike wheat and corn prices, rice prices continue to rise.
The rise in food prices on a global scale is expected to come to an end this year. According to Oxford Economics, they should even begin to decrease, which will relieve buyers.
“Our main forecast is for global food prices to post an annual decline this year, which will reduce pressure on retail food prices further down the chain,” the economic analysis firm said, quoted by CNBC.
The main driving force behind this expected decline in food commodities is the “abundant supply” of many important crops, especially wheat and corn. Bountiful harvests in recent months of the two main crops have led to a steady decline in exchange rates. Wheat futures have fallen nearly 10% year-to-date, while corn futures have lost about 6% over the same period, according to FactSet data.
Farmers increased production of wheat and corn for grain on the back of higher prices after Russia began its invasion of Ukraine in 2022. As a result, the global corn crop for the marketing year ending in August this year is likely will reach record levels, according to the analysis of Oxford Economics.
The wheat crop is also forecast to be high, albeit slightly below the record level in the 2022-2023 marketing year.
Pressure on grain supply in Russia and Ukraine has also eased. Despite the collapse of the Black Sea Grain initiative last July, Ukrainian agricultural exports remain at good levels, Oxford Economics lead economist Kiran Ahmed writes, adding that Russian wheat exports are also flooding international markets, keeping prices low.
Wheat and maize, along with rice, account for more than half of the world’s caloric intake. This means that the direction of their price movement will have a decisive impact on the food budgets of consumers around the world, the report says.
Although wheat and maize prices have fallen sharply, however, those of rice have steadily risen, with global supplies hampered by export restrictions imposed by India, which accounts for about 40% of global production. The country’s weak harvest last year also pushed up prices. In contrast to the decline in wheat and corn prices, paddy rice futures are up more than 8% year-to-date.
According to data from the World Bank, in 2023 world food prices will drop by 9%. Similarly, the UN Food Agency’s world price index hit a three-year low in February, but saw a slight recovery in March, driven by higher prices for dairy products, meat and vegetable oils.
“We expect prices to fall another 5.6% this year before rising year-on-year next year,” Ahmed says.
However, Oxford Economics noted that risks to the food price outlook were still “predominantly on the upside” given the adverse weather conditions. Bad weather has dented agribusiness confidence and crop forecasts, with cocoa recently rising to record levels as West African farmers grapple with bad weather and disease. If the poor weather conditions persist, the outlook for the crop may also deteriorate in other key regions.
“However, we believe that prices are now close to the lower bound and will begin to rise gradually in the second half of 2024,” the report said.
“Buyers in Africa and Asia have also refrained from buying wheat in the hope of further lower prices – and their return to the market could lead to a recovery in rates,” says Ahmed. “Additionally, rice prices that remain high could encourage more export restrictions from India.” Therefore, while our base case scenario sees food prices remaining depressed this year, there are growing risks that they could recover more strongly than expected. This could keep food price inflation higher than in our baseline scenario, keeping pressure on consumers.”
