SINGAPORE – Recent spikes in food prices have driven farmers across the globe to increase the cultivation of grains and oilseeds. Despite this ramp-up in planting, consumers are likely to continue experiencing scarce supplies into 2024, as challenges such as the El Nino climate pattern, export curbs, and rising biofuel production exacerbate the situation.
Market trends suggest that the prices of wheat, corn, and soybeans, which have seen substantial increases over the past few years, could see declines in 2023. Factors contributing to this include the easing of logistical bottlenecks in the Black Sea region and concerns about a potential worldwide economic downturn. Nonetheless, the markets remain sensitive to supply disruptions and the persistent issue of food inflation, as highlighted by industry analysts and market participants.
Ole Houe, a director at IKON Commodities based in Sydney, notes, “While 2023 has seen some improvement in grain supplies due to increased harvests in key areas, the overall situation remains precarious. The forecasted El Nino conditions extending into the April-May period, Brazil’s likely reduction in corn output, and China’s unexpected uptick in wheat and corn purchases all add to the uncertainty.”
The El Nino phenomenon, known for inducing dry weather, is predicted to persist into the first half of 2024. This will potentially impact the production of rice, wheat, palm oil, and other agricultural goods in some of the leading exporting and importing nations. As a result, the first half of the year could see a dip in Asian rice production due to arid conditions and depleting water reserves.
Already, the El Nino event has led to diminished rice yields this year, compelling India, the largest rice exporter globally, to limit its rice exports. Rice prices soared to a 15-year peak in 2023, with some Asian markets witnessing price rises between 40% and 45%.
India is also facing the threat of reduced wheat harvests due to moisture deficits, potentially pushing the country to import wheat for the first time in six years, as government stockpiles are at a seven-year low.
In Australia, one of the top wheat exporters, farmers might begin sowing in parched soil come April, after a spell of intense heat hindered this year’s yields and put an end to a series of record-breaking harvests. This could lead to countries like China and Indonesia seeking wheat from alternative sources in North America, Europe, and the Black Sea region.
Commerzbank analysts anticipate a tightening in the wheat supply for the 2023/24 season compared to the previous year due to likely reduced exports from key producing countries.
On a more optimistic note, South America may see a rebound in corn, wheat, and soybean production in 2024, although erratic weather patterns in Brazil cast some doubt. In Argentina, favorable rainfall has set the stage for potentially robust harvests of soybeans, corn, and wheat. The Rosario grains exchange (BCR) reports that a significant portion of the early planted corn and soybeans are in excellent to very good condition, thanks to beneficial rains in the Pampas region since late October.
Brazil is on track for near-record agricultural output in 2024, although recent dry spells have led to scaled-back production forecasts for soybeans and corn.
Furthermore, global palm oil production is expected to decline next year due to the dry conditions associated with El Nino, which may bolster cooking oil prices that fell by over 10% in 2023. This drop in palm oil output coincides with anticipated higher demand for biodiesel and cooking oil.
CoBank, a key financier for the U.S. agricultural sector, predicts more potential for price increases than decreases. “We’re facing tight global grain and oilseed stock inventories, a likely strong El Nino effect during the northern hemisphere growing season for the first time since 2015, a weakening dollar, and a return to the long-term growth trend in global demand,” CoBank stated.
This report was contributed to by Naveen Thukral, with additional insights from Ana Mano in Sao Paulo, Sybille de La Hamaide and Gus Trompiz in Paris, Maximilian Heath in Buenos Aires, and Julie Ingwersen and PJ Huffstutter in Chicago, and was edited by Tom Hogue.
High food prices have led to an increase in cereal and oilseed planting globally, but supply issues are expected to persist into 2024 due to factors like El Nino weather patterns, export restrictions, and rising biofuel mandates. Despite some losses in global wheat, corn, and soybean prices in 2023, the market remains sensitive to potential supply shocks. El Nino is forecasted to continue into the first half of 2024, which may negatively impact the production of rice, wheat, palm oil, and other crops in key agricultural regions. Rice prices, in particular, have surged to a 15-year high. India may need to import wheat for the first time in six years due to a moisture deficit affecting its crop. Meanwhile, South America’s grain production is expected to improve, although Brazil faces dry weather concerns. Argentina’s crops are in good condition following rainfall. Palm oil production is predicted to decrease next year, which could support cooking oil prices after a decline in 2023. Overall, global grain and oilseed stockpiles remain tight, and various factors suggest that there might be more risk of price increases than decreases in the future.
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