THE basic products They were a blessing for inflation, at least for food. Prices of agricultural-related commodities skyrocketed in 2022, in the heat of the war in Ukraine, only to follow a calm but steady downward trajectory. This accelerated sharply this summer with a powerful crash. However, in September something changed. A succession of very different events conspired to erupt at the same time in the main supplying countries. This meant that in the ninth month of the year, foods experience the greatest rise since the war in Ukraine.
The Bloomberg Agriculture index, which brings together the seven main raw materials in the sector, It climbed above 7% in September. The increase is, however, clearer since products reached their lowest level in August. Since then, there has been a significant rebound in virtually all agricultural sector products.
He sugar rose 25% during this period, followed by coffeewith an increase of 20%. More basic products such as wheat, corn and soy saw their prices increase by 16%, 17% and 12% respectively. For its part, rice was the most stable, with an increase of 4%, while orange juicestuck in a spiral of volatility, managed to smooth out the fluctuations in its price with an increase of 10%, practically identical to that of the cocoa.
If this trend continues, it could put some pressure on central banks who have committed to lowering rates thanks to falling inflation. In the case of Europe, the CPI has already returned to its target, falling to 1.8% in September. For its part, in the United States, it is already close to 2.5%. The ECB has already cut rates twice, while the Fed launched a massive cut in September. However, experts hope that this It’s just a temporary rest stop that I walk into, as the trend seemed to have taken hold at the falls. The reason for this is various climatic factors that have completely disrupted the production roadmap of the most important countries in their respective markets.
A clear example is Brazil. The South American republic is responsible for a significant share of the world’s production of coffee, sugar, oranges and soybeans, being the world’s leading exporter of these products. 50% of the world’s soy supply and 75% of orange juice come from Brazil. 30% coffee and 19.3% sugar. It is also a key player in the corn market, competing hand in hand with the United States which holds first place, accounting for 32% of global exports.
This is why the market collected with concern the August export data from its Ministry of Agriculture, in which there was a drop of 9.5%, notably in corn, which collapsed by 35% due to “climatic conditions”. These problems mainly come from the lack of rain and a drought that no one remembers. Large fires also occurred in this context, which exacerbated the problem.
From the Agriculture and Horticulture Development Council, they explain that “the dry climate and high temperatures that Brazil suffers have been the center of attention lately, since soy planting begins this month -this. According to the country’s national disaster monitoring center, Cemaden, Brazil faces one of the worst droughts on recordwith more than a third of the country affected. » The dry climate poses challenges, “even in Mato Grosso, a central state that produces about 29% of the country’s soybeans. » Drought across much of northern and central Brazil will likely continue to threaten crops, JP Morgan analysts said in their latest report.
There have also been serious problems in Southeast Asia. In particular one of lime and another of sand. First, a huge drought hit Vietnam, another major producer of coffee (14.3%) and rice (15%), as well as other major producers in the region like Indonesia. It also affected Thailand, responsible for 16% of the world’s rice supply. In this case, Problems in both countries were followed by a major typhoon (Yagi) and heavy rains which affected production, even causing flooding. All this great change from drought to storms without passing a moment of calm.
In Australia, on the other hand, the southern and southeastern regions of the country are facing very low rainfall, followed by huge frosts in September that have damaged the production of wheat, cereals and all types of agricultural products. the island is a key supplier of wheat and barley. Concretely, the cereals that leave its ports represent approximately 13.7% of the world supply. In addition, they represent a key element of the global logistics chain, since their proximity to Asia allows them to more efficiently supply these countries which, with China in the lead, are among the main global consumers.
“The main world markets are well supplied”
Another problem comes from Ukraine. At the start of the war, the wheat market suffered critically, as the south of the country was the lungs of the world when it came to grain. Now it is the sixth power, with 5% of the world supply because the war limited its agricultural potential. However, it remains an important player and the drought is affecting its production. “The weather forecast for the Black Sea region is an important wake-up call,” Chris Hyde, a meteorologist at Maxar, told Reuters.
All of these factors coincided over time, triggering a powerful monthly awakening that broke the trend so far and caused the biggest rebound since the war in Ukraine. However, even if this changes the panorama, experts believe that it is only a step on the path and that, as climate doubts dissipate, the trends will return to the same. “Commodity prices should will experience a slight decline in 2024 and 2025, but is expected to remain above pre-pandemic levels”, comments the latest World Bank report. The recent FAO Food Outlook report concludes that, despite positive forecasts , “global food production systems remain vulnerable to shocks from extreme weather events, geopolitical tensions, policy changes and developments in other markets. »
From Oxford Economics they explain that the record harvests that have taken place in recent years “have meant that the main markets are well supplied” and, although they expect prices of agricultural products to reach their lowest level at some point in 2024, they have been betting on a “one-off recovery during the home stretch of 2024 as buyers return to the market. ” However, they believe there are now major upside risks, starting with the aforementioned “weather conditions”, added to “weaker harvests in the United States and trade restrictions in key markets, such as India “. However, for the moment, the increase generated in September should attenuate in the coming months or, at least, stop in favor of a more stable market. It is worth remembering that so far this year the prices of agricultural products even. with the latest increases, still show a drop of 4%.
