High global food prices are expected to ease in 2024, offering some relief for shoppers, CNBC reported, citing Oxford Economics.
“Our baseline forecast is for global food prices to register an annual decline this year, reducing pressure on retail food prices further down the chain,” the economic advisory firm wrote in a recent note.
The main driving force behind the decline in food prices is the “abundant supply” of many important crops, especially wheat and corn.
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Large harvests in recent months for both major crops have led to a steady decline in prices. Wheat futures are down nearly 10% year-to-date, while corn futures are down about 6% over the same period, according to FactSet data.
Farmers increased production of both wheat and corn amid higher prices after Russia began its invasion of Ukraine in 2022.
As a result, global maize crops for the marketing year ending in August this year are likely to reach record levels, according to analysis by Oxford Economics. Wheat harvests are also expected to be high, although slightly below the record level in the 2022-2023 marketing year.
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The war between Russia and Ukraine
Pressure on grain supply in Russia and Ukraine also eased.
Despite the failure of the Black Sea Grain initiative 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 critical impact on the food budgets of consumers around the world, the report states.
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Although wheat and maize prices have seen sharp declines, rice prices have steadily risen, with global supplies hampered by export restrictions imposed by India, which accounts for about 40% of global rice production. The country’s weak harvest last year also pushed prices up. Contrary to the decline seen in wheat and corn prices, paddy rice futures are up more than 8% year-to-date.
Global food prices recorded a 9% decline in 2023, according to the World Bank. Similarly, the UN Food Agency’s world price index hit a 3-year low in February but rebounded slightly in March, lifted by increases in dairy, meat and vegetable oils.
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“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 “largely skewed to the upside” amid potentially adverse weather conditions.
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Bad weather is undermining agribusiness confidence and crop prospects, with cocoa recently surging to record levels as farmers in West Africa battle bad weather and disease. If poor weather conditions continue, crop prospects could be disrupted in other key crop-growing regions, the note said
“However, we believe that prices are already close to the threshold and will begin to gradually rise in the second half of 2024,” the report said.
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“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 prices,” says Ahmed. Also, rice prices that remain high could also encourage more export restrictions coming from India.
“So while our base case scenario is for food prices to remain low this year, there are growing risks that prices may recover more sharply than expected.” This could keep food price inflation higher than in our base case, keeping pressure on the consumer,” he concludes.
