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

Farmers harvest a wheat field near Melitopol in Ukraine. Wheat, soybeans, sugar and corn futures have all fallen from their March highs to prices seen in early 2022.

Olga Maltseva | Afp | fake images

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

But the FAO said that while the drop in food prices “from very high levels” is “welcome”, there are questions about whether the good news will last.

“Many uncertainties remain, including high fertilizer prices that may affect future production prospects and farmers’ livelihoods, a gloomy global economic outlook and currency movements, all of which pose serious strains for food security. world,” FAO chief economist Máximo Torero said in a statement. Press release.

The FAO Food Price Index, which tracks the monthly change in global prices for a basket of food staples, fell 8.6% in July from the previous month. In Junethe index fell just 2.3% month-on-month.

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

Short-term prices may fall further, if futures are any guide. Wheat, soybean, sugarY corn futures have fallen from their March highs to prices seen in early 2022.

For example, wheat contracts closed at $775.75 a bushel on Friday, down from a 12-year high of $1,294 in March, and around the $758 price set in January.

why prices fell

Skepticism about the Ukraine-Russia deal

Global skepticism about whether Russia will keep its end of the bargain is in the air.

Russia fired a missile at Odessa just a few hours after the agreement negotiated by the UN at the end of July.

And freight and insurance companies may still think it’s too risky to ship grain out of a war zone, Vos said, adding that food prices remain volatile and any further shocks may cause further price increases.

“To make a difference, it will not be enough to take out a few shipments, but at least 30 or 40 per month to take out the existing grains stored in Ukraine, as well as the products of the next harvest,” Vos said.

“To help stabilize the markets, the agreement will have to be kept in its entirety also during the second half of the year, since that is the period in which Ukraine makes the majority of its exports.”

Even with the existing deal, Ukrainian arable land may continue to be destroyed “as long as the war continues,” resulting in even lower crop yields next year, said Carlos Mera, head of market research for agricultural products at Rabobank, to CNBC. “The street signs of Europe” In the past week.

“Once this [grain] After the corridor is finished, we may see even more price increases in the future,” Mera said. Consumers could also see more price increases, as there is typically a three to nine month lag before a move is reflected in prices of basic products on supermarket shelves.

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

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

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

In a note published earlier this month, the credit rating agency Fitch Ratings’ Analysts wrote that a possible rise in fertilizer prices, which recently fell but are still double those of 2020, could push grain prices back up.

The restriction of gas supply by Russia has caused natural gas prices in Europe to skyrocket. Natural gas is a key ingredient in nitrogen-based fertilizers. La Niña weather patterns could also disrupt grain harvests later this year, they added.

And falling food prices are not all good news. Part of the reason commodities have gotten cheaper is that traders and investors are pricing in fears of a recession, analysts said.

The global manufacturing purchasing managers’ index has been on the decline, while the US Federal Reserve appears determined to raise interest rates to curb inflation even if it triggers a recession, the Fitch team wrote.

staple foods

Cereal prices, under which wheat falls, fell 11.5% month-on-month, the FAO index showed. Wheat prices specifically fell 14.5%, partly due to the reaction to the grain deal between Russia and Ukraine and better harvests in the northern hemisphere, the FAO said.

Vegetable oil prices fell 19.2% month-on-month, a 10-month low, in part due to ample palm oil exports from Indonesia, lower crude oil prices and a lack of palm oil demand. sunflower.

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

Dairy and meat prices fell 2.5% and 0.5% respectively.

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