Rising food prices around the world may finally bottom out this year.
According to Oxford Economics, they are expected to ease in 2024, offering some relief to consumers.
“Our main forecast is that global food commodity prices will post an annual decline this year, easing pressure on downstream retail prices,” the company said in a report.
The key driving force behind the decline in food commodity prices is the “abundant supply” of many important crops, most notably wheat and corn.
Strong harvests in recent months for both major crops have led to a serious drop in prices. Wheat futures are down nearly 10% since the start of the year, while corn is down about 6% over the same period, FactSet data show.
Farmers increased production of wheat and corn after prices jumped after Russia launched its invasion of Ukraine in 2022.
As a result, the global corn crop for the marketing year ending August 2024 is likely to be at record levels, according to analysis by Oxford Economics. The wheat harvest is also expected to be large, although slightly below record levels for the 2022-2023 marketing year, the report further stated.
The Russia-Ukraine war
Pressure on grain supply from Russia and Ukraine has also eased.
Despite the termination of the Black Sea grain deal in July last year, Ukrainian agricultural exports remain at good levels, writes Oxford Economics Chief Economist Kiran Ahmed. Russian wheat exports are also flooding international markets, keeping prices low, he added.
Wheat and maize, along with rice, account for more than half of global caloric intake. This means that the direction of their prices will have a significant impact on the food budget of consumers around the world, the report further states.
While wheat and maize prices have seen sharp declines, those of rice have steadily risen, with global supply hampered by export restrictions imposed by India, which contributes about 40% of global rice supply.
The weak harvest in the country last year also contributed to the increase in prices. In contrast to the decline seen in wheat and corn, rice futures are up more than 8% since the beginning of the year.
Food prices are set to drop 9% in 2023, according to the World Bank. The UN’s Food and Agriculture Organization (FAO) world price index fell to a three-month low in February, but registered a slight increase in March on the back of increases in the prices of dairy products, milk and vegetable oils.
“We expect prices to fall another 5.6% this year before posting a year-on-year increase next year,” Ahmed says.
With that in mind, Oxford Economics noted that risks to the food price outlook “are still overwhelmingly on the upside,” with adverse weather also a factor.
Bad weather is affecting agribusiness and crop yields, with cocoa prices recently hitting record highs as West African farmers battle bad weather and disease.
If poor weather conditions continue, crop prospects may be affected in other key crop growing regions, the report noted.
“However, we believe that prices are close to bottoming out and will begin to rise gradually in the second half of 2024,” the report said.
Buyers in Africa and Asia are also refraining from buying wheat in the hope of further lower prices, and their return to the market could trigger a price recovery, Ahmed said. In addition, rice prices, which remain high, could encourage further export restrictions by India.
“Thus, while our main scenario is for lower prices this year, the risks of a sharper-than-expected price increase are piling up. This could lead to a higher level of food inflation than our baseline forecast, keeping pressure on consumers,” he concluded.
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