Prices of food dropped by a lot in July compared to the prior month. This was especially true for wheat and vegetable oils. according to the latest figures from the United Nations’ Food and Agriculture Organization.
However, the FAO indicated that the FAO welcomed the decrease in food costs “from very high levels”, but there were doubts about how long the positive news would last.
Maximo Turero, FAO’s chief economist, said that many uncertainties remain. These include high fertilizer prices, which could impact farmers’ future production prospects, as well as a poor global economic outlook. He also spoke out about currency movements and the bleak global economy.
FAO Food Price Index, which measures the change in food prices worldwide, saw a decrease of 8.6% between July and the prior month. In JuneHowever, it fell 2.3% month-on-month.
However, July’s index was still 13.1% lower than July 2021.
On Friday, wheat contracts were closed at $775.75/bubblel. This is down from the $1,294 March high and close to the January $758 low.
Why prices fell
Analysts pointed out a combination of supply and demand reasons that caused the drop in food prices. These include the closely-watched agreement between Russia and Ukraine to allow grain exports through the Black Sea, which was made after months of blockingade. Better-than-expected crop yields and a slowdown globally.
Rob Vos is the Director of Markets, Trade and Institutions at the International Food Policy Research Institute. He pointed out the fact that Australia and the United States are expected to harvest bumper crops this year. This will increase supply after shipment restrictions from Russia and Ukraine.
Vos explained that the U.S. dollar is higher than other currencies, which means staples are more affordable. All commodities are listed in U.S. dollars. When the greenback has high prices, traders tend to demand lower nominal dollar commodities prices.
It is widely celebrated U.N.-backed deal between Ukraine and RussiaThe market was also cooled. According to United Nations, Ukraine was sixth in the world for wheat exports, with 10% of the global market.
The first shipment of Ukrainian grain — 26,000 tons of maize — since the invasion left the country’s southwestern port of Odesa last Monday.
Skepticism over Ukraine-Russia deal
The global skepticism about whether Russia will honor its side of the deal hangs in the balance.
Russia launched a missile onto Odesa just hoursAfter the U.N.-brokered agreement in late July
Vos stated that freight companies and insurance firms may not think it is too risky for grain to be shipped out of war zones. He also said that food prices are volatile, and new shocks can lead to higher prices.
Vos stated that it is not enough to send a handful of shipments. At least 30, 40 or more shipments per month are needed to move the grains in Ukraine and the products from the next harvest.
“The deal should be maintained in its entirety during the second part of the calendar year, as that’s the time when Ukraine makes most exports.”
Even with the current agreement, arable Ukrainian land could continue being destroyed “for so long as the war continued,” which would result in even lower crop yield next season, Carlos Mera of Rabobank’s head agri commodities markets research told CNBC’s.Street Signs Europe“Last week.
“Once that [grain]Mera explained that although the price increase corridor is now closed, there may be further increases in future.” As there’s usually three to nine months between when commodity prices change and are visible on shelves, consumers could see additional price hikes.
Also, there’s the need to get enough grain out of a war zone as fast as possible.
It’s high time we get back to work. We won’t export two, I think. [to] five million tons per month out of these Black Sea ports,” John Rich, the executive chairman of Ukrainian poultry giant Myronivsky Hliboproduct (MHP), told CNBC’s “Capital ConnectionOn Monday.
People who are hungry at the end of the week get very hungry.
a note published earlier this month, credit rating agency Fitch Ratings’ analysts wrote that a possible increase in fertilizer prices, which fell recently — but which are still double that of 2020 — could cause grain prices to jump again.
Russia’s gas restrictions have caused European natural gas prices spike. Nitrogen-based fertilizers use natural gas as a major ingredient. They also warned that La Nina weather conditions could cause disruptions to grain harvests in the future.
However, the drop in food prices does not bode well for everyone. Analysts said that one reason staples are cheaper is because traders and investors have priced in the possibility of recessionary fear.
According to the Fitch team, global purchasing managers’ indexes have been declining while the U.S. Federal Reserve appears determined to raise interest rates in an effort curb inflation, even if that causes a recession.
The essential food items
The FAO index revealed that cereal prices under which wheat is classified fell 11.5% in a month. According to FAO, prices for wheat dropped by 14.5% because of the Russia-Ukraine deal and the better harvests from the Northern Hemisphere.
Vegetable oil prices fell by 19.2% month on month — a 10-month low — in part because of ample palm oil exports from Indonesia, lower crude oil prices, and lack of demand for sunflower oil.
The drop in demand for sugar, the weaker Brazilian real and increased supplies from India led to prices falling by 3.8%, making them a 5-month low.
Prices of meat and dairy products fell by 0.5% and 2.5%, respectively.