FAO food price index fell sharply in July but the respite may not last

Meals costs dropped considerably in July from the earlier month, notably the prices of wheat and vegetable oil, based on the newest figures from the United Nations’ Meals and Agriculture Group.

However the FAO mentioned that whereas the drop in meals costs “from very excessive ranges” is “welcome,” there are doubts over whether or not the excellent news will final.

“Many uncertainties stay, together with excessive fertilizer costs that may influence future manufacturing prospects and farmers’ livelihoods, a bleak international financial outlook, and forex actions, all of which pose severe strains for international meals safety,” FAO chief economist Maximo Torero mentioned in a press launch.

The FAO meals value index, which tracks the month-to-month change within the international costs of a basket of meals commodities, fell 8.6% in July from the month earlier than. In June, the index fell simply 2.3% month on month.

Nevertheless, the index in July was nonetheless 13.1% larger than July 2021.

Costs within the brief time period could fall additional, if futures are something to go by. Wheat, soybean, sugar, and corn futures have fallen from their March highs again to costs seen in the beginning of 2022.

For instance, the wheat contracts closed at $775.75 per bushel on Friday, down from a 12-year excessive of $1,294 in March, and across the $758 value set in January.

Analysts cited a mixture of each demand and provide causes for the slide in meals costs: Ukraine and Russia’s intently watched settlement to renew exports of grain by the Black Sea after months of blockade; better-than-expected crop harvests; a worldwide financial slowdown; and the sturdy U.S. greenback.

Rob Vos, the director of markets, commerce and establishments on the Worldwide Meals Coverage Analysis Institute, pointed to the information that the USA and Australia are set to ship bumper wheat harvests this 12 months, which can enhance provide since cargo from Ukraine and Russia have been curtailed.

The upper U.S. greenback additionally lowers the worth of staples, since commodities are priced in U.S. {dollars}, Vos mentioned. Merchants are likely to ask for decrease nominal greenback costs of commodities when the dollar is dear.

The extensively heralded U.N.-backed deal between Ukraine and Russia additionally helped to chill the market. Ukraine was the world’s sixth-biggest wheat exporter in 2021, accounting for 10% of worldwide wheat market share, based on the United Nations.

The primary cargo of Ukrainian grain — 26,000 tons of maize — because the invasion left the nation’s southwestern port of Odesa final Monday.

International skepticism over whether or not Russia will maintain its finish of the cut price hangs within the air.

Russia fired a missile onto Odesa simply hours after the U.N.-brokered deal in late-July.

And freight and insurance coverage corporations should suppose it is too dangerous to ship grain out of a struggle zone, Vos mentioned, including that meals costs stay unstable and any new shock may cause extra value surges.

“To make a distinction it won’t be sufficient to get a number of shipments out, however a minimum of 30 or 40 per 30 days to get the prevailing grains saved in Ukraine out, in addition to the produce of the upcoming harvest,” mentioned Vos.

“To assist stabilize markets, the deal might want to maintain in full additionally through the second half of the 12 months since that’s the interval the place Ukraine does most of its exports.”

Even with the prevailing settlement, arable Ukrainian land could proceed to be destroyed “for so long as the struggle continues,” which can lead to even much less crop yield subsequent 12 months, Carlos Mera, the pinnacle of agri commodities market analysis at Rabobank, informed CNBC’s “Avenue Indicators Europe” final week.

“As soon as this [grain] hall is over, we would see much more value will increase going ahead,” Mera mentioned. Shoppers might additionally see additional value will increase as there’s usually a lag of three to 9 months earlier than a motion in commodity costs is mirrored on grocery store cabinets.

Then there’s the stress of exporting sufficient grain as rapidly as potential from a struggle zone.

“It is time that we’re working once more. I do not see us exporting two [to] 5 million tons per 30 days out of those Black Sea ports,” John Wealthy, the manager chairman of Ukrainian poultry large Myronivsky Hliboproduct (MHP), informed CNBC’s “Capital Connection” on Monday.

“Hungry folks, on the finish of the day, get hungry in a short time after per week.”

In a notice printed earlier this month, credit standing company Fitch Rankings’ analysts wrote {that a} potential enhance in fertilizer costs, which fell just lately — however that are nonetheless double that of 2020 — might trigger grain costs to leap once more.

Russia’s restriction of gasoline provide has led European pure gasoline costs to spike. Pure gasoline is a key ingredient in nitrogen-based fertilizers. La Nina climate patterns might disrupt grain harvests later this 12 months as nicely, they added.

And the autumn in meals costs shouldn’t be all excellent news. A part of the rationale why staples have turn out to be cheaper is that merchants and traders are pricing in recessionary fears, the analysts mentioned.

The worldwide manufacturing buying managers’ index has been in decline, whereas the U.S. Federal Reserve appears bent on elevating rates of interest to curb inflation even when it triggers a recession, the Fitch crew wrote.

Cereal costs, beneath which wheat falls, fell by 11.5% month on month, the FAO index confirmed. Costs of wheat particularly fell by 14.5%, partly due to the response to the Russia-Ukraine grain deal, and higher harvests within the Northern Hemisphere, the FAO mentioned.

Vegetable oil costs fell by 19.2% month on month — a 10-month low — partially due to ample palm oil exports from Indonesia, decrease crude oil costs, and lack of demand for sunflower oil.

Sugar costs dipped by 3.8% to a five-month low in gentle of shrinking demand, a weaker Brazilian actual in opposition to the dollar, and elevated provide from Brazil and India.

Dairy and meat costs dropped by 2.5% and 0.5% respectively.