The World Bank projected agricultural commodity prices will drop 7% this year and likely fall again in 2024. This is not good news for farmers but it might be great news for commodity short-sellers, who make profits from the depreciation of investments. The Bank estimated corn prices will be down more than 15% this year and another 11% in 2024.
Wheat prices are also expected to decline 17% more this year from 2022 and nearly 6% more in 2024. Prices for soybeans and soybean oil are expected to be down sharply this year. Indeed, the projected easing in inflation is likely to not have a significant impact on food inflation, considering prices are still at their highest level since 1975. The Bank’s report estimates 349 million globally will be food-insecure this year, which is twice as many as in 2020.
The price of corn has moved rapidly from over $8 per bushel to less than $6 per bushel, despite many financial models predicting one of weakest U.S. corn harvests in years as soil moisture levels near a 12-year low in corn-growing regions. Meanwhile, China’s demand for grain imports is at all-time highs, with imports so far this marketing year running at slightly higher levels than last year’s, despite China’s COVID lockdowns and an overall economic slowdown.
As a matter of fact, declining commodity prices have reduced food import costs. The top 20 importers of grains, oilseeds, and vegoils are paying collectively $69.7 billion more annually as of August 2, than they were at the start of 2020. That’s down from a peak reached on April 29 of nearly $125 billion above the 2020 level. Indermit Gill, the World Bank’s chief economist and senior vice president for Development Economics said:
“The surge in food and energy prices after Russia’s invasion of Ukraine has largely passed due to slowing economic growth, a moderate winter, and reallocations in the commodity trade. But this is of little comfort to consumers in many countries. In real terms, food prices will remain at one of the highest levels of the past five decades. Governments should avoid trade restrictions and protect their poorest citizens using targeted income-support programs rather than price control.”
The report also notes there should be no further disruptions from the war in Ukraine, while good harvests in major grain-producing countries like Australia, Canada, Russia, and the United States contribute to lower prices. Despite continued macroeconomic uncertainty, a return to normal market positioning will push agricultural commodity market fundamentals to eventually assert themselves as commodity price drivers. And while food-importing countries are currently benefiting from lower food import costs, this trend could reverse once agricultural market fundamentals regain prominence.