Grains prices in the global commodities market will likely drop further during the current quarter to June, but low inventories will act to establish a price floor, according to analysts.
This is in view of higher projections of wheat and soybean production by global agencies such as UN’s Food and Agriculture Organisation (FAO) and International Grains Council (IGC).
“Grains prices have declined across the board through the first quarter. Corn futures have given up 7.4 per cent in the year-to-date, rice futures 7.3 per cent, soybean futures 2.7 per cent, and wheat futures 11.9 per cent. With the exception of rice futures, which we expect to average higher through 2023 than during 2022, the prices of all major grains reached the April 4 close below their average level in 2022,” said Fitch Solutions Country Risk and Industry Research, a unit of Fitch Group.
Principal driver
One of the reasons for the drop in grains’ prices is the continued operation of the Black Sea Grain Initiative, which has served as the principal driver of bearish sentiment, it said.
But the impact of the initiative has now been mostly priced into grains markets. “We do note, however, the uncertainty as to the exact length of the March 2023 renewal as well as to Russia’s call for further progress on a parallel deal to unblock its food and fertiliser exports to be achieved by mid-May,” it said.
FAO’s Agricultural Market Intelligence Service (AMIS) Market monitor report said since being established in July 2022, the Black Sea Grain Initiative has been instrumental in moderating world agricultural commodity and fertiliser prices from the record highs that were reached following the outbreak of the war in Ukraine.
Trade forecast to rise
“The renewal of the grain deal on March 18 was thus welcome news for agricultural markets. However, much remains to be done to restore the proper functioning of markets to pre-war conditions,” it said.
The grain market report of the International Grains Council’s (IGC) said, led by an assumed recovery in maize, global grains output is projected to rise by 1 per cent in 2023-24 to 2,283 million tonnes (mt).
“While this would boost overall supply, comparatively larger consumption gains could result in smaller end-season inventories, pegged 1 per cent lower. Linked mainly to accelerating maize and sorghum deliveries into Asia, total trade is predicted to increase by 1 per cent,” it said.
Upside risks
Fitch Solutions said it expects prices to trade sideways in the near-term. Market arrivals of major corn, soybean and wheat harvests later in the current quarter will see prices trend downwards.
“Upside risks to our forecasts are, aside from a collapse of the Black Sea Grain Initiative, specific to individual grains markets, such as the drought conditions presently blighting the US winter wheat crop or the potential for Brazil’s late corn planting to increase the exposure of the harvest to unfavourable weather conditions…,” it said.
However, the impact of lower global grain stocks will negate price pressures.
“On the downside, risks are driven by consumption, which will continue to be weighed on by tight monetary policy, persistent price inflation, as well as subdued global growth and so remains vulnerable to negative exogenous shocks,” the research agency said.
Wheat price outlook
AMIS’ said the grain deal was needed for both the Russian Federation and Ukraine, besides the rest of the world. “The stakes and challenges beyond May are significant, and the nodal issues that need to be addressed include the limitations of the existing deal caused by inspection quandaries and the high cost of insurance,” it said.
Fitch Solutions said it was lowering its wheat price forecast to $7.2 a bushel for second-month contracts, a revision of 2.7 per cent from its previous forecast.
On the Chicago Board of Trade, wheat futures meant for delivery in May are ruling at $6.75. Wheat prices have dropped over 10 per cent since the beginning of 2023.
“Wheat prices have come under substantial downward pressure during the first quarter due to the increased presence of Russian wheat on global markets following the country’s record-breaking harvest, which we estimate at 91.0 mt. This was exacerbated by a record harvest in Australia,” Fitch Solutions said.
AMIS has estimated global wheat production for 2022-23 at 796.6 mt against its previous estimate of 794.6 mt (778.1 mt last year). IGC has pegged it at 801 mt (781 mt).
Corn rate projection
Fitch Solutions said it was lowering its corn price projections to $6.5 a bushel from 660 cents for 2023. Currently, corn futures on the Chicago Board of Trade are quoted at $6.53 .
The lower price forecast comes with AMIS raising its corn production estimated to 1,159 mt against earlier projections of 1157.6 mt (1,212). IGC has pegged the crop’s estimated at 1,150 mt (1,220 mt).
Corn price is forecast lower as US corn plantings have increased and production outlook in Brazil was robust. The decline in the coarse cereal’s prices will be capped for two reasons — drop in supplies from Argentina and Ukraine and continued impact of the Ukraine war.
Rice an exception
Fitch Solutions said rice prices will witness an annual increase of 2.9 per cent since it sees a large deficit seen since 2003-04. The rice market has further been affected by India’s curbs on exports since September, including a ban on 100 per cent broken rice.
AMIS has lowered its rice production estimated further to 516 mt from 516.6 mt (524.4 mt), while IGC has pegged it at 511.4 mt (515 mt).
Fitch Solutions said it does not forecast any further curb in rice exports from India, while current restrictions are unlikely to be repealed “prematurely”, which means a comfortable stock position.
IGC raised its rice production forecast for India, while AMIS has retained its earlier projections. The US Department of Agriculture has pegged the output at 127 million tonnes compared with the Indian government’s 130.87 mt.
Soyabean prospects
Fitch Solutions said soyabean prices remained elevated in the first quarter of 2023 after beginning an upward tick in the fourth quarter of 2022 due to a projection of a 38.6 per cent drop in Argentina’s production. A 22 per cent rise in Brazilian output will likely make up for the fall in Argentina production, it said.
As a result, the research agency sees the oilseed price ruling lower in line with its projections. FAO’s AMIS has cut its estimate of soyabean production to 370.7 mt against the earlier projection of 382.3 mt (357.1 last year). IGC has pegged it at 369.8 mt (355.8 mt)