Against some predictions for a second straight year of falling corn and wheat production in war-stricken Ukraine, analysts have started to raise the alarm over another commodity.
Prices for rice
RRH23,
a staple for half the world, are hoving at their highest in nearly two years, the Saxo Bank strategy team alerted clients in a note on Friday.
The surge comes amid disruptions over wheat supplies and strong demand, as Russia’s invasion and the war in the breadbasket of Europe, as Ukraine is often referred to, grinds toward the one-year mark.
Climbing rice prices could be a particular issue for one of the commodity’s biggest customers — Asia.
Rice prices will need to be “capped soon” or turn into another global headache for consumers and governments, said Ole Hansen, Saxo Bank’s head of commodity strategy, said in emailed comments.
“Part of the reason why Asia got through last years food inflation surge (scare) was the fact rice prices held fairly steady,” said Hansen. “But now prices are moving higher and if some of that is being driven by substitution for wheat, the problem is unlikely to go away anytime soon, given the current projections for Ukraine wheat production and the USDA saying on Thursday that it saw Russia’s official wheat crop estimate as ‘not feasible.’”
Excluding the brief 2020 pandemic jump, the price of Rough Rice futures in Chigao are trading near the highest level in a decade, notes Saxo Bank.
Saxo Bank/Bloomberg
Terry Roggensack, co-owner and agricultural analyst at commodities research firm the The Hightower Report, discussed with MarketWatch two recent reports that indicate Ukraine will see lower production for vital agricultural commodities this year.
The first, Roggensack said, was a forecast from the Ukraine Grain Association that 2023 grain and oilseed production combined will likely to fall to 53 million tons this year. That compares to 67.5 million tons in the this past year and 106 million tons in 2021.
“It’s a big drop,” he told MarketWatch in a telephone interview.
He also cited reports from the two-day Paris Grain Conference, due to wrap up Friday. “They’re saying wheat production in Ukraine may not exceed 16 million tons this year. We were at 20.5 million tons this past year and 33 million for the year before that, said Roggensack.
That same Paris conference forecast 2023 corn production in Ukraine near 18 million tons, from 27 milion in 2022 and 42.1 million in 2021, he said.
The analyst said if India, one of the biggest wheat producers in the world, were to have trouble this year, along with the Ukraine war disruptions and less favorable weather in the U.S. in early March, could “tighten things up and be a supportive factor for the rice market.”
But Roggensack also noted a report from the USDA attache to Australia, who raised the 2023/23 wheat output forecast from that country, which would make for a third straight year of record crops from Australia.
Corn
C00,
wheat
W00,
and soybean futures
S00,
were all expected to see weekly gains, on back of the bevy of reports.
Food inflation redux
“Yes, there’s been strong demand [for rice], part of which was due to China’s relaxing it’s COVID restrictions and Asian countries buying ahead of the New Year holiday. India, Thailand, and Vietnam are the world’s largest exporters,” Dave Whitcomb, head of research at Peak Trading Research, said in emailed comments.
“These rising rice prices are definitely something to keep an eye on – it’s the world’s #1 grain staple,” he added.
Hansen said soaring rice prices are yet another example of persistent food inflation. “And earlier this week, the U.S. envoy to the United Nations agencies in Rome said that the worst food crisis since World War II will only end if Russia pulls out of Ukraine,” he said.
Agriculture prices surged after Russia invaded Ukraine last February, but by summer had come off those highs. Rice did not see the same price jumps.
Governments around the world have been fighting soaring inflation, chiefly sparked by the war in Ukraine, with concerns that higher interest rates will spark recession for major global economies such as the U.S. Meanwhile, energy prices have calmed down but some worry that China’s economic reopening will boost demand for lots of commodities.
Consumers have been dealing with other price pressures in the food sector.
Egg prices have nearly doubled in a year in the U.S., a surge that has mostly been blamed on an outbreak of bird flu that caused millions of chickens to be slaughtered, and farmers struggling to compensate for higher costs.
In the U.S., Sen. Jack Reed last week asked the Federal Trade Commission to probe the possibility of price gouging among egg producers.
Read: Adding protein to diets via fermentation is one solution to egg shortages and climate change
Credit: marketwatch.com