Oxford Economics: A fall in food prices is coming – Economic Post

Global food prices are expected to ease in 2024, offering some relief for consumers, Oxford Economics reports.

“Our baseline forecast is that global food commodity prices will post an annual decline this year, easing pressure on retail food prices further,” the financial consultancy wrote in a recent note.

The main driver behind the decline in food staple prices is the “abundant supply” of many important crops, notably wheat and maize.

Harvests in recent months for both key crops have led to a steady decline in prices. Wheat futures contracts
fell nearly 10% year-to-date, while corn futures lost about 6% over the same period, according to FactSet data.

Farmers increased production of both wheat and corn following the highest prices since Russia’s invasion of Ukraine in 2022.

As a result, global maize harvests for the marketing season ending in August this year are likely to reach record levels, according to Oxford analysis. The wheat harvest is also forecast to be high, although slightly below the record level of the 2022 to 2023 marketing season, the report said.

Russia-Ukraine war

At the same time, the pressures on grain supply in Russia and Ukraine have been reduced.

As Oxford Economics chief economist Kiran Ahmed writes, despite the collapse of the Black Sea Grain initiative in July last year, Ukrainian agricultural exports are holding up well.

Russian wheat exports have also flooded international markets, keeping prices low, he added.

The prices of wheat and corn

Wheat and maize, together with rice, account for more than half of global caloric intake. This means that the direction of their prices will critically affect the food budgets of consumers around the world, the report points out.

As CNBC points out, although wheat and corn prices have fallen sharply, rice prices have been rising steadily, with global supplies hampered by export restrictions imposed by India, which accounts for about 40% of world production.

Poor harvests in the country last year also pushed prices higher. In contrast to the decline seen in wheat and corn prices, paddy rice futures have gained more than 8% year-to-date.

Global food prices fell by 9% in 2023, according to the World Bank. Similarly, the United Nations Food Organization’s world price index hit a three-year low in February , but rebounded slightly in March , driven by increases for dairy products, meat and vegetable oils.

“We expect prices to decline further by 5.6% this year before rising year-on-year next year,” Ahmed said.

Against this background, Oxford Economics notes that the risks to its food price forecast remain “overwhelmingly skewed to the upside”, with adverse weather on the cards.

The weather

Bad weather has shaken agribusiness confidence and crop prospects, with cocoa recently soaring to record levels as West African farmers battle bad weather and disease. If bad weather conditions persist, harvest prospects could also decline in other key crop-growing regions, the note added.

Buyers in Africa and Asia have also refused to buy wheat in the hope of even lower prices – and their return to the market could lead to a price recovery, Ahmed said. In addition, rice prices, which remain high, could also encourage more restrictions on exports from India.

“So while our basic assumption is that food prices will remain low this year, risks are growing that prices could recover more than expected. This could keep food price inflation higher than in our base case, keeping pressure on the consumer,” he concluded.