SINGAPORE, Dec 13 (Reuters) – Drought or too much rain, the war in Ukraine and high energy costs are likely to curb global agricultural production and tighten supplies again next year, even as high prices encourage farmers to ramp up production .
Production of staples such as rice and wheat is unlikely to replenish depleted inventories at least in the first half of 2023, while edible oil-producing crops in Latin America and Southeast Asia are suffering from the adverse weather.
“The world needs bumper harvests to meet demand. We absolutely need to do better in 2023 than this year,” said Ole Houe, Director of Advisory Services at Sydney-based agricultural broker IKON Commodities.
“At this point it looks very unlikely given the global grain and oilseed production outlook.”
Wheat, corn and palm oil futures have fallen from record or multi-year highs, but retail market prices remain elevated and tight inventories are expected to support prices in 2023.
WHY IT MATTERS
As food prices hit record highs this year, millions of people around the world are suffering, especially poorer countries in Africa and Asia that are already facing hunger and malnutrition.
The cost of food imports is already on track to hit a record nearly $2 trillion in 2022, forcing poor countries to curb consumption.
Benchmark Chicago wheat futures jumped to an all-time high of $13.64 a bushel in March after Russia’s invasion of top grain exporter Ukraine reduced supply in a market already hit by adverse weather and post-pandemic restrictions.
Corn and soybeans climbed to their highest levels in a decade, while Malaysia’s benchmark crude palm oil prices hit a record high in March.
Wheat prices have since fallen to pre-war levels and palm oil has lost around 40% of its value amid fears of a global recession, China’s COVID-19 restrictions and an extension of the Black Sea Corridor deal for Ukrainian grain exports.
WHAT DOES THIS MEAN FOR 2023?
While floods in Australia, the world’s second-largest wheat exporter, have wreaked havoc on harvest-ready crops in recent weeks, a severe drought is expected to shrink Argentina’s wheat crop by nearly 40%.
This will reduce the global availability of wheat in the first half of 2023.
A lack of rainfall in the US plains, where winter harvest rates are at their lowest since 2012, could impact second-half shipments.
Rice prices are expected to remain high as long as export tariffs imposed earlier this year by India, the world’s largest supplier, remain in place, traders said.
“Rice availability is fairly low in most exporting countries except India, but there are export tariffs to reduce sales,” said a Singapore-based trader at an international trading company.
“If we get a production shock in one of the countries with the most exports or imports, that can really push the market higher.”
The prospects for South America’s corn and soybeans for the early 2023 harvest look good, although the recent drought in parts of Brazil, the world’s largest exporter of beans, is a cause for concern.
According to the US Department of Agriculture, US supplies of key crops such as corn, soybeans and wheat are expected to remain stable into 2023.
The agency forecast that US corn inventories will fall to a decade low ahead of the 2023 harvest, while soybean inventories are at a seven-year low and final wheat inventories are at their lowest in 15 years.
Palm oil, the world’s most consumed cooking oil, has been hit by tropical storms across Southeast Asia, where high costs have led to reduced use of fertilizers.
Still, higher grain and grain prices have encouraged farmers in some countries, including India, China and Brazil, to plant more crops.
“Planting is higher in several countries, but production is expected to remain subdued due to adverse weather and other factors,” Ole said. “Production will likely not be sufficient to replenish depleted supplies.”
Explore the Reuters round-up of the news that dominated the year and the outlook for 2023.
Reporting by Naveen Thukral; additional reporting from Mei Mei Chu in Kuala Lumpur and Karl Plume in Chicago; Adaptation of Lincoln Feast.
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