By and large, global grains and oilseeds prices have continued to trend lower.
This follows the diplomatic interventions by the UN and Turkish, Russian and Ukrainian governments to facilitate the safe passage of grain exports out of the Black Sea region.
In March the UN Food and Agriculture Organisation's Global Food Price Index, a measure of the monthly change in international prices of a basket of agricultural commodities, was at 126.9 points, down 2.1% from February. This marked the twelfth consecutive monthly decline since it reached a peak a year ago.
Notably, the index is down 21% from March 2022, shortly after Russia invaded Ukraine. This decline has been observed in commodity prices across the board, including meat, dairy, cereals and vegetable oils.
The exception is sugar prices, which are up marginally from March 2022. The 2022/23 global sugar ending stocks are projected to tighten as growth in global consumption exceeds the rise in production.
While the downward trend in most global agricultural commodity prices will most likely persist in the near term, they will probably not return to pre-Covid-19 levels. Global grain stocks are also expected to tighten as the production of some commodities has declined while consumption increased. This will support agricultural commodity prices well above long-term levels.
For example, earlier in March, the US department of agriculture (USDA) indicated in its World Agricultural Supply and Demand Estimates report that 2022/23 global wheat production could reach 788-million tonnes, up 1% from the February estimates and the previous season's harvest.
The larger harvest is on the back of expected larger average yields in Russia, the US, Canada, Kazakhstan, China, Australia and the UK. That said, 2022/23 global wheat stocks are expected to decline 1% from the previous season to 267-million tonnes because of solid consumption.
Here is what’s behind the surge in global agricultural commodity prices
Moreover, 2022/23 global rice production is estimated at 509-million tonnes, up 1% from the February estimates and roughly the same level as the 2021/22 harvest. Because of solid consumption levels, the USDA currently forecasts an 8% annual decline in global rice stocks, estimated at 173-million tonnes.
However, the maize and soybean monthly production picture is different. For example, the 2022/23 global maize production is forecast at 1.15-billion tonnes, down 0.3% from the February estimate and 6% less than the 2021/22 season’s crop. This is mainly due to an expected smaller crop in the US, Ukraine and the EU. The 2022/23 global maize stocks are forecast to dwindle 3% from the prior season, estimated at 296-million tonnes.
The 2022/23 soybean production forecast was slashed 2% from February due to a poor anticipated harvest in Argentina amid dry weather. Still, this is 5% up from the previous season. The anticipated large soybean harvests in Brazil, Russia and China are expected to more than offset expected production declines in the US, India, Argentina and Uruguay. These deviations in crop expectations are a function of weather conditions and variations in the area planted from season to season.
Overall, I view the 2022/23 global grains and oilseeds production season in a positive light. The expected global production levels should be sufficient to provide relief from soaring grain and oilseed prices, which started in the weeks after the start of the Russia-Ukraine war. Still, tighter maize and rice stock levels are likely keep prices at higher levels than their long-term averages.
SA is part of the global agricultural market. Therefore, these anticipated price trends will invariably be transmitted to the domestic agricultural market. In essence, this means agricultural commodity prices will most likely continue to soften from 2022’s levels, although not to the extent of reaching pre-Covid-19 levels.
This producer price stickiness will be welcomed by grain and oilseed producers, which still have to contend with input costs that are now edging lower but remain stubbornly high. Therefore, we still expect the terms of trade in field crop production to remain positive in the short term.
The same cannot be said for horticultural production, where producer prices have not surged to the same extent (as those of field crops) to provide a much-needed buffer to high input and exporting costs.
The livestock subsector has also been taking a strain due to high feed costs. Nonetheless, the latest field crop commodity bearish trend will provide something of a reprieve for intensive livestock production systems and struggling households as consumer food price inflation gradually moderates.
• Sihlobo is chief economist at the Agricultural Business Chamber of SA and a senior fellow in Stellenbosch University’s department of agricultural economics.
