Despite retreating in the third quarter of the year, agricultural commodity prices remain strong compared to the beginning of the year. The World Bank forecasts that average grain market prices in 2023 will be below this year’s levels, but will remain strong for two years due to a number of factors including drought, war and trade issues.
Grain market will remain strong
Grain prices retreated in the third quarter amid the opening of the Black Sea grain corridor and recession concerns. Although prices have retreated from the peaks recorded this year, the global grain market is expected to remain strong next year due to the Russia-Ukraine crisis, cost increases and drought undermining production, and trade issues. Average prices in 2023 are expected to be below this year’s levels but remain high for the next two years.
The S&P GSCI Agriculture Index, which tracks agricultural commodities, has risen 5.26 percent since the beginning of the year. Wheat futures in Chicago are around $8.10 a bushel as of this week, up 6.5 percent from a year ago. Corn prices are up 9.5 percent to $6.55 and soybeans are up 7.5 percent to around $14.45. In other agricultural products, cocoa prices on NYMEX fell 1 percent to $2,500 per ton, coffee prices fell 27 percent to $1.65 per pound and cotton prices fell 25 percent to 84 cents per pound.
Average price could fall 5%
With downward revisions to global economic growth forecasts and higher wheat production, the World Bank is forecasting that the average price in grain markets in 2023 will be 5 percent below this year’s average price. “Agricultural prices are projected to fall 5 percent in 2023 before stabilizing in 2024. The projected decline in 2023 reflects a better-than-expected global wheat crop, stable supplies in the rice market, and the resumption of grain exports from Ukraine,” the bank said. Wheat prices could see a modest decline next year, according to the World Bank. Corn prices could average 8 percent below this year. Rice prices are expected to remain at similar levels next year.
Factors that will push prices higher
Ukraine and Russia: Disruptions in exports from Ukraine or Russia, both major grain exporters, could once again disrupt global supplies, as happened in the early stages of the war in Ukraine.
Energy prices: Further increases in energy prices or disruptions in energy supplies (especially natural gas and coal, key inputs for fertilizers) could put upward pressure on grain and edible oil prices.
La Niña: Adverse weather conditions could reduce yields; 2023 will be the third consecutive year of La Niña, potentially reducing yields of key crops in South America and southern Africa.
Trade policies: Trade policies play an important role in commodity prices. In the aftermath of the Ukraine war, some countries imposed export bans to control their domestic markets. In 2008, for example, export bans led to aggressive buying in the rice market, causing prices to quadruple.
Price pressures
On the downside, weaker-than-expected growth, especially in China, may affect the prices of some agricultural commodities such as corn and soybeans used as animal feed.
Inventory/utilization ratio
Wheat: According to the World Bank, wheat production will enter a balanced year. On the supply side, declines in Argentina and Ukraine will be offset by higher-than-expected crops in major exporters, including Australia, Canada and Russia. Global wheat consumption is expected to fall by 0.5 percent due to weaker-than-expected demand for animal feed. As a result, the stocks-to-use ratio will remain roughly flat at 0.34.
Maize: The Bank expects global maize production to decline by 4 percent this season. This is the result of lower production in the EU, which accounts for 7 percent of global supplies, and the US, which accounts for 32 percent. However, due to the expected decline in consumption, it expects the stock/use ratio to be 0.26, well above the 0.13 level in 2020, when prices skyrocketed.
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