October 4, 2022

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The FAO Food Price Index fell sharply in July, but the respite may not last

The FAO Food Price Index fell sharply in July, but the respite may not last

Farmers harvest a wheat field near Melitopol, Ukraine. Futures contracts for wheat, soybeans, sugar and corn have fallen from their highs in March to prices seen at the beginning of 2022.

Olga Maltseva | Afp | Getty Images

Food prices fell significantly in July from the previous month, especially wheat and vegetable oil prices, According to the latest numbers from Food and Agriculture Organization of the United Nations.

But the Food and Agriculture Organization said that while the decline in food prices “from very high levels” was “welcome”, there were doubts about whether the good news would continue.

“Many uncertainties remain, including higher fertilizer prices that could affect future production prospects and farmers’ livelihoods, a bleak global economic outlook, and currency movements, all of which pose serious pressures on food security,” Maximo Torero, chief economist at FAO, said in a statement. Global”. Press release.

The FAO Food Price Index, which tracks the monthly change in global prices for a basket of food commodities, fell 8.6% in July from the previous month. in JuneThe index fell only 2.3% on a monthly basis.

However, the index in July was still 13.1% higher than in July 2021.

Why did the prices go down?

Doubts about the Ukraine-Russia deal

Global doubts about whether Russia will live up to the end of the deal hang in the air.

Russia launched a missile at Odessa only hours After the agreement brokered by the United Nations in late July.

Shipping and insurers may still think shipping grain outside a war zone is too risky, Voss said, adding that food prices remain volatile and any new shock could cause prices to rise further.

“To make a difference, it won’t be enough to take out a few shipments, but at least 30 or 40 shipments per month to take out the grain that is in Ukraine, plus the next harvest crop,” Voss said.

“To help stabilize markets, the deal will need to hold fully also through the second half of the year because that is the period when Ukraine does most of its exports.”

Even with the current agreement, the destruction of Ukraine’s arable land could continue “as long as the war continues,” resulting in a lower crop next year, Carlos Mera, head of agricultural commodity market research at Rabobank, told CNBC. “Street signs in Europe” last week.

“One time this [grain] “The lane is gone, and we may see more price increases in the future,” Mira said. Consumers could also see further price increases as there is usually a lag of three to nine months before commodity price action is reflected on supermarket shelves.

Then there is pressure to export enough grain as quickly as possible from a war zone.

“It’s time for us to work again. I don’t see we’re exporting two [to] Five million tons per month from these Black Sea ports,” John Rich, CEO of Ukrainian giant poultry company Myronivsky Hliboproduct (MHP) told CNBC.capital connection” on Monday.

“Hungry, at the end of the day, gets hungry very quickly after a week.”

in A note published earlier this month, credit rating agency Fitch Ratings’ Analysts wrote that a potential increase in fertilizer prices, which fell recently – but still twice as much in 2020 – could push grain prices up again.

Russia’s restriction of gas supplies has driven up natural gas prices in Europe. Natural gas is a major component of nitrogen-based fertilizers. They added that weather patterns in La Nina may disrupt grain crops later this year as well.

And falling food prices isn’t all good news. Analysts said that part of the reason for the decline in commodity prices is that traders and investors are setting prices in light of recession fears.

The Fitch team wrote that the global manufacturing PMI is declining, while the US Federal Reserve appears intent on raising interest rates to curb inflation even if it causes a recession.

Food

The FAO index showed that grain prices, under which wheat falls, fell by 11.5% month-on-month. The FAO said wheat prices specifically fell by 14.5%, due in part to the reaction to the grain deal between Russia and Ukraine, and improved yields in the northern hemisphere.

Vegetable oil prices are down 19.2% month over month – a 10-month low – due in part to a glut of palm oil exports from Indonesia, lower crude oil prices, and a lack of demand for sunflower oil.

Sugar prices fell 3.8% to a five-month low in light of shrinking demand, a weaker Brazilian real against the dollar, and increased supply from Brazil and India.

Prices of dairy and meat products decreased by 2.5% and 0.5%, respectively.