A breather for world agricultural production. Grain prices have fallen sharply from their highs recorded last year as a result of the Russian attack on Ukraine. The Food and Agriculture Organization of the United Nations (FAO) cereal price index stood at 147.3 points on average in February, just two points above the same month in 2022, when the war broke out in Ukraine and prices skyrocketed. The current levels are well below the maximum that was reached in May of last year, when it exceeded 173 points. This fall is due, according to analysts, to three fundamental factors: the improvement in production forecasts, the fall in the cost of fertilizers and fuel, and the agreement to export cereals through the Black Sea signed between Moscow and Kiev.
The UN estimates that, since the signing of this initiative in July last year, around 25 million tons of cereals have been exported to 45 countries and world food prices have fallen by approximately 18%. Last week the agreement was extended for another 120 days, until July 18, which guarantees supply in the short term.
Global production forecasts are also easing the market. The FAO forecast for 2023 is that world wheat exploitation will be the second highest recorded in history, with 784 million tons. Prospects for coarse grain crops, such as maize, are also favorable thanks to increased plantings in Brazil to record levels and a good rainy season in Argentina. In parallel, fertilizer prices have fallen considerably. The North American Green Market Index has fallen to 533 dollars a tonne (493 euros), after reaching a maximum of 1,270 dollars (1,176 euros) in March last year.
Despite these data, agricultural analysts warn that this is a truce that is still under threat as the Black Sea grains deal could unravel and energy volatility and climate change may also undermine crop production. crops. John Baffes, Senior Economist at the World Bank’s Outlook Group, has come to recognize that these conditions put the economy “flying on one engine,” so if any of these risks materialize there will again be a rapid rebound in prices. prices.
The most latent danger is the possibility of breaking the export agreement between Russia and Ukraine. A failure in the negotiation would block the supply of grains to half the planet. Also, while many crops and fertilizers are exempt from European sanctions imposed on Moscow, there is a chance that geopolitical tensions could lead to supply disruptions. If so, wheat and corn, which are the two main basic products that benefited, could return to all-time highs. The first reached 1,277 dollars (1,182 euros) per bushel in May 2022; now it stands at around 680 dollars (629 euros). The second reached a maximum of 818 dollars (757 euros) a bushel in April last year, while it is now at 630 dollars (583 euros).
Looking ahead to the remainder of the year, the US authorities expect prices to remain relatively high because global stocks of these foods are still low, according to a document on the outlook for the sector, published by the Department of US agriculture in February of this year. The FAO also forecasts that world cereal stocks will decrease by the end of 2023 by 1.2% compared to January due to lower production of coarse grains (maize, barley and sorghum) and rice, which offset the increase in the production of wheat.
Grain shortages were the engine of the rebound even before the war. The first blow came from the previous droughts and the collection that governments and companies had made during the pandemic. Crop nutrient prices then soared as a result of Moscow’s position as the world’s largest fertilizer exporter, while rising prices for natural gas, a key ingredient for nitrogenous fertilizers, also increased pressure. on farm markets.
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