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.
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.
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.