Wednesday, February 1, 2023

Rising food prices trigger pressure warnings on developing countries

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A sharp rebound in food prices is raising concerns about inflation and potential unrest in some developing countries.

Storage, logistical bottlenecks and dry weather have pushed the wheat, soybean, rice and corn markets up. The Bloomberg Agriculture sub-index has jumped more than a third from its low in June to a two-and-a-half-year high, while the Food and Agriculture Organization of the United Nations food price index peaked at six years in November. Soybeans, a key ingredient for livestock feed and a major source of vegetable oil, is trading at just under $ 13 a bushel, with traders predicting “teenage beans” for the first time in six years.

In 2007-08, severe droughts drove up prices, causing food riots in some African countries. A wheat export ban by Russia in 2010 also led to a spike in food prices in the Middle East, contributing to the Arab uprising. Some are now concerned about a ‘Covid shock’ hitting some of the most vulnerable countries.

“The real impact is access to food. People have lost their income. There are a lot of unhappy people and this is a recipe for social unrest, ”said Abdolreza Abbassian, senior economist at FAO.

The problem is not a food shortage at this point – grains and oilseeds have experienced bumper crops in recent years, resulting in increased stocks. But analysts fear that rising prices during times of economic stress may bode ill, especially for poorer countries, especially as an economic rebound in Asia pushes up demand for grains and soybeans. “Food inflation is the last thing governments need right now,” said Carlos Mera, analyst at Rabobank.

Fitch Solutions expects agricultural commodities to rise as travel and spending “get closer to normal as the hotel and restaurant industry reopens and consumer confidence increases.”

Various governments boosting their food reserves have also pushed the markets up.

China has been a particularly big buyer everything from corn to rice. The country’s authorities have used their reserves to cushion price increases during the pandemic and replenish their strategic stocks. A recovery in the pig herd after the ravages of African swine fever has also led to a rebound in cereals used for animal feed.

In the corn market, for example, the Beijing office of the US Department of Agriculture more than tripled Chinese import estimates for the 2020-2021 crop year range from 7 million tonnes to 22 million tonnes. Due to the low level of state reserves, “significant corn imports will be needed to meet demand while controlling further price increases and maintaining stocks throughout 2021,” he said. he declares.

Line chart of CBOT soybeans ($ per bushel)

Wheat purchases by North African countries have kept pace and food companies are also making sure they don’t end up with shortages. Wheat itself was plentiful, but stocks were piling up in importing countries, Mera said. “It’s a transition from ‘just in time’ to ‘just in case’,” he added.

Supply concerns also feed the cereal bulls. Dry weather has affected crops around the world, particularly in South America, where the La Niña climate regime is causing hot and dry conditions in southern Brazil and Argentina. Farmers are struggling with lack of rain, and many have to dig up fields of shriveled crops.

Corn hit its highest level in six years, and while wheat isn’t at this year’s peak, it is still trading over $ 6 a bushel, from levels last seen in 2014, due to drought in Russia, the world’s largest wheat exporter, worries about restrictions on grain exports by Moscow.

Rice prices, which surged after Southeast Asian producers threatened to limit overseas sales at the start of the pandemic, have remained high amid logistical bottlenecks and purchasing China. Port congestion and lack of containers have doubled shipping times in some cases, causing market nervousness, said Frank Gouverne, COO of Rice Exchange, a digital platform for commerce. rice.

“Freight prices have doubled. People also wait three to four months for their orders, which adds additional pressure in the market, ”he said.

Hedge funds and other speculators also bought food in the second half of 2020, further adding to the recovery. At the end of October, speculators held record net “long” positions in agricultural commodity futures and options after an unprecedented 22 consecutive weeks. While some have taken profits, bullish positions remain at multi-year highs.

Although prices in international markets are lower than the levels seen in 2009 and 2010-12, food products are expected to remain a pressure point, especially for less developed countries.

“Yes [people] will realize that the vaccine will not solve the problems in the short term and that they do not have food, then things could get out of hand, “warned FAO’s Abbassian, adding:” Although I still doubt that we touch them [previous] peaks, we will see some volatility in the coming year. ”


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