After flattening out in July this year, prices of foodgrains are likely to reflect the demand-supply fundamentals, though they will likely rule at elevated levels for the remainder of the year and 2023, analysts say.

Weather and crop reports are moving the markets with supply concerns being factored in. Over the past month, wheat prices have gained by 5.5 per cent, corn by over six per cent and rice by nearly two per cent.

However, research agency Fitch Solutions Country Risk and Industry Research, a Fitch group unit, the global rice market is now under severe pressure for the first time this year. As of September 7, rice futures prices are up 16.8 per cent year-to-date, ahead of corn (up 15 per cent) and wheat (up 10.7 per cent) as well as soyabean (up 3.3 per cent). 

Deluge of issues

“This reflects a series of events in key rice-producing and consuming markets that have led to expectations of tighter supplies in the near term, including delayed rice plantings in India on account of erratic monsoon rains, expectations of lower rice production in China as a result of the heatwave and persistent drought conditions, and a likely fall in export volumes from Pakistan due to catastrophic flooding,” it said.

ING Think, the financial and economic analysis wing of Dutch multinational financial services firm ING, said weather reports show that China has witnessed severe heatwaves over the past few weeks which could “negatively impact” crop production for the current season. 

“China’s National Meteorological Services warned again of high temperatures and drought in large parts of the country, with the government issuing notices to several provinces to use water resources conservatively. Similarly in the US, dry and hot weather was seen impacting corn yields, especially in the Midwest region,” it said.

Food prices decline

While reporting a drop in food prices for the fifth consecutive month, the Food and Agricultural Organisation said international wheat prices fell by 5.1 per cent in August, marking the third consecutive monthly decline, driven by improved production prospects, especially in Canada, the US and the Russian Federation, besides the resumption of exports from the Black Sea ports in Ukraine. “Nevertheless, global wheat prices remained 10.6 per cent above their values in August last year. International prices of coarse grains increased marginally (0.2 per cent) in August with prices of corn firming up by 1.5 per cent… By contrast, global barley and sorghum prices decreased by 3.8 per cent and 3.4 per cent, respectively. The FAO All Rice Price Index held steady in August, as slight declines in quotations of the most widely traded Indica varieties compensated for mild price gains in other rice market segments,” it said.

Fitch Solutions said in the current quarter wheat prices have dropped by 0.4 per cent, while corn has gained 9.6 per cent. “The key factor driving this price movement divergence is the contrasting outlooks for global wheat and corn harvests in 2022-23, as reflected in the USDA’s revisions in the World’s Agricultural Supply and Demand Estimates in August,” it said.

Cross-commodity factors

The USDA raised the global wheat production estimate by 8 million tonnes (mt), while cutting it by 6.3 mt for corn in August. Referring to the rice situation, the research agency said it had actually insulated Asian consumers from food security concerns.

“However, cross-commodity factors will remain relevant to grains prices through 2022 and into 2023, including the countervailing forces of dry freight rate decline and fertiliser price increases,” Fitch Solutions said. 

While freight prices have dropped, fertiliser prices have increased in response to a rise in energy costs, with prices in August up 60.5 per cent year-on-year and up 156.7 per cent over the last three years, it said. 

For India, the impact is that corn exports could gain. It could result in farmers gaining since prices could rule above the current crop year (July 2022-June 2023) minimum support price of ₹1,962 a quintal. Currently, the daily national weighted average price is ₹2,191. As regards wheat and rice, the Centre has curbed their shipments.  

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