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Commodity prices soften, although still elevated

Steered by fears of recession and a clearer picture of this year’s global grain harvest, the sky-high commodity prices fueled by Russia’s invasion of Ukraine are losing momentum, analysts said on Thursday. The USDA was likely to scale back its estimates of record-high farm-gate prices for this year’s wheat and soybean crops despite the uncertainties caused by warfare in the Black Sea region.

Commodity prices have a limited connection to food prices; farmers get 16 cents of the food dollar. For the past year, food inflation has been a headache throughout the industrialized world. U.S. grocery prices rose 10.8% in the year ending in April, the fastest increase since November 1980.

Futures prices have crested, with high commodity prices and fears of recession whittling down demand for grains, said agricultural economist Scott Irwin of the University of Illinois. “Unless the weather turns markedly worse for the remainder of the U.S. growing season or there is another supply shock coming out of the Ukraine war, then I believe the worst of raw commodity price inflation is behind us.”

The FAO Food Price Index rocketed to its highest level ever in March, immediately after the invasion of Ukraine, before declining marginally in April and May. The UN Food and Agriculture Organization was to update the index, based on international prices for a basket of food commodities, on Friday to reflect prices in June.

Pat Westhoff, director of the FAPRI think tank, said the USDA was likely to reduce its forecasts of season-average prices for major U.S. crops when it releases its monthly WASDE report on Tuesday. The amount “may depend on how much of the crop they think farmers managed to sell when prices were much higher,” said Westhoff. In June, the USDA projected an average wheat price of $10.75 a bushel and an average soybean price of $14.70 a bushel, both records.

The Bloomberg Commodity Index, based on futures prices for 20 physical commodities including petroleum, metals, and grains, has declined sharply since June 9. It was 16% lower on Thursday than a month earlier. A financial analyst said lower wheat prices would provide “some measure of relief to many consumers around the world.” Futures prices for grains dropped this week to their lowest prices in months — attributed to recession fears — before rebounding on Thursday. Wheat was up 3% and corn and soybeans were up 2%, reported Reuters.

“The situation in Ukraine still matters — prices are higher than they would be if the crisis were resolved,” said Westhoff. “It’s important to remember that even after the declines, prices for many commodities are still a lot higher than they were two years ago.”

For instance, in 2020, the U.S. wheat crop sold for an average of $5.05 a bushel, corn for $4.53, and soybeans for $10.80. On Thursday, the futures price for wheat was $8.24-1/2 a bushel, corn was $7.47, and soybeans were $15.91-1/4.

“One of the issues is that while market prices have dropped, the underlying fundamentals haven’t changed much,” said Joe Glauber of the IFPRI think tank. “Maybe there is less uncertainty — the U.S. and EU crops look better than they might have been,” he said, while Indonesia has relaxed its ban on palm oil exports and India is being less stringent about wheat exports than initially thought.

“All of that said, you still got a lot of grain in Ukraine that ain’t going nowhere, in the words of Bob Dylan,” said Glauber. “Ordinarily one of the world’s largest wheat exporters and the leader in sunflower oil, Ukraine can move by rail only a fraction of the grain it used to load onto ships at its now-blockaded Black Sea ports. That can’t be good for new-crop plantings in the fall and next spring.”

The Labor Department is scheduled to release the monthly Consumer Price Index report on Wednesday. In June, it said the U.S. inflation rate was 8.3%.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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