Farmers all over the world have planted more cereals and oilseeds as a result of raised food prices, but customers are likely to suffer shortages far beyond 2024 due to unfavorable El Nino weather, export limitations, and increased biofuel requirements.
After several years of robust profits, global wheat, corn, and soybean prices are expected to decline in 2023 due to easing Black Sea bottlenecks and worries of a global recession. Nevertheless, prices are still susceptible to supply shocks and food inflation in the New Year, according to analysts and traders.
“The supply picture for grains certainly improved in 2023 with bigger crops in some of the key places which matter. But we are not really out of the woods yet,” said Ole Houe, director of advisory services at agriculture brokerage IKON Commodities in Sydney.
“We have El Nino weather forecast until at least April-May, Brazil is almost certainly going to produce less corn, and China is surprising the market by buying larger volumes of wheat and corn form the international market.”
EL NINO & FOOD PRODUCTION
It is predicted that the El Nino weather phenomenon, which caused drought in many areas of Asia this year, will persist in the first half of 2024, endangering the supply of wheat, rice, palm oil, and other agricultural products in some of the major agricultural exporters and importers around the globe.
Officials and traders predict that dry planting conditions and declining reservoirs will reduce yields, which will result in a decline in Asian rice production in the first half of 2024.
Due to the El Nino weather phenomenon, which reduced rice output and forced India—by far the world’s largest exporter—to curtail exports, the world’s rice supply has already tightened this year.
In 2023, rice prices surged to their greatest level in 15 years, while other grain markets saw a decline in value. Some Asian export hubs are growing 40%–50%.
Lack of moisture is also jeopardizing subsequent wheat crops, which can pressurize the world’s second-largest wheat customer to turn to imports for the first time in six years as local stocks in state warehouses have fallen to the lowest level in seven years.
FARMERS DOWN UNDER
Australia, the second-largest wheat exporter in the world, may have farmers sowing their crop on dry soils in April after months of extreme heat reduced yields for this year’s crop and put an end to a three-dream run of record harvests.
This will probably lead to purchasers looking for higher volumes of wheat from other exporters in North America, Europe, and the Black Sea region, including China and Indonesia.
“The (wheat) supply situation in the current 2023–24 crop year is likely to deteriorate compared to last season,” Commerzbank wrote in a note.
“This is because exports from important producer countries are likely to be significantly lower.”
Positively for grain supplies, South American corn, wheat, and soybean production is set to grow in 2024, while there is some uncertainty due to Brazil’s unpredictable weather.
Rich rainfall over farming heartlands in Argentina is expected to increase soybean, corn, and wheat production in one of the world’s biggest grain exporting countries.
Rainfall in the country’s Pampas region since the end of October has resulted in 95% of early-planted corn and 75% of soybeans being in “excellent to very good” condition, according to Argentina’s Rosario Grains Exchange (BCR).
Brazil’s agricultural output is expected to reach near-record levels in 2024, despite recent dry weather-related reductions in the country’s predictions for corn and soybean production.
Due to the dry El Nino weather, there will likely be less palm oil produced globally in 2023, which will help to support cooking oil prices, which fell by almost 10% that year. The reduction in production coincides with the increased demand anticipated for cooking oil and biodiesel derived from palm oil.
“We see more upside price risk than down,” stated CoBank, one of the top lenders to the US agricultural industry.
“Global grain and oilseed stock inventories are tight by historic measures, the northern hemisphere will likely have a strong El Nino weather pattern during the growing season for the first time since 2015, the dollar should continue its recent decline, and global demand should return to its long-term growth trend.”