Concerns over Black Sea Grain Initiative and the Impact on Food Prices: FAO Food Price Index and AMIS Market Monitor Released

The October FAO Food Price Index remained largely unchanged from September, with rising cereal prices balanced by declines in the other commodity groups. The overall Food Price Index has fallen by almost 15 percent from March 2022 but remains 2 percent above its October 2021 levels.

The Cereal Price Index rose 3 percent from September to reach 11.1 percent above its October 2021 level. Wheat prices rose by over 3 percent due to concerns over the looming expiration of the Black Sea Grain Initiative in November. Maize prices increased by 4.3 percent due to lowered production prospects in the United States and European Union, poor planting conditions in Argentina, and uncertainty regarding Ukraine exports. Rice prices also rose, although the increase was more limited (1 percent) due to continued low demand.

 The Vegetable Oil Price Index declined by 1.6 percent in October to reach nearly 20 percent below its October 2021 level. Positive forecasts for supplies in the coming months drove soybean oil down, as well as rapeseed oil. Palm oil prices declined due to remaining stock levels in Southeast Asia.

The Dairy, Meat, and Sugar Price Indices also all declined in October, by 1.7, 1.4, and 0.6 percent, respectively.

The AMIS Market Monitor for October also highlighted concerns over whether the Black Sea Grain Initiative will be extended beyond November 18. The Initiative has allowed Ukraine to export over 9 million tons of grains and oilseeds, helping to support Ukrainian farmers and cool market prices around the world. With Russia threatening to end the Initiative, however, worries are again mounting about the future of global food prices and food security. In the report, AMIS emphasized that the end of the Initiative would disincentivize Ukrainian farmers from planting wheat, as they would not be able to sell their produce internationally and would face lower domestic prices. As Ukraine accounts for around 10 percent of global wheat exports (pre-war), AMIS estimates that global wheat stocks would not recover for at least another year, leading to higher prices and more volatile markets.

*The following forecasts were completed prior to October 29, 2022 and do not account for developments regarding the Black Sea Grain Initiative after that date.

Global wheat production forecasts for 2022 fell slightly in October but remain slightly above 2021 levels. Wheat utilization forecasts remained unchanged in October; utilization is expected to rise slightly from the previous year due to increased use in food consumption globally. Expectations for 2022-2023 wheat trade rose in October due to increased exports from Ukraine following the start of the Black Sea Grain Initiative; however, trade remains 1 percent lower than the previous year’s level. Global wheat ending stock forecasts fell in October, but stocks are still expected to be around 2 percent higher than their opening levels.

Global 2022 maize production forecasts remained unchanged in October; production is expected to be around 3.7 percent below the previous year’s levels due to reduced harvests in the UK, Ukraine, and the US. Maize utilization forecasts declined in October due to lower industrial use. Global maize trade forecasts remained steady in October, with increased exports from Ukraine balancing reduced trade by the US, EU, and Russia. Global maize ending stocks are expected to be 5.5 percent lower than opening levels; this reflects higher expected exports from Ukraine and reductions in production in the US.

Rice production prospects also remained unchanged in October. Rice utilization for 2022-2023 is expected to be 0.7 percent lower than the previous year, while 2023 trade is expected to decline by 1.6 percent from 2022. Global rice ending stock forecasts remain unchanged in October, with stocks expected to decline by 1.8 percent from their opening levels. Rice stocks are expected to remain the third largest on record.

Soybean production expectations increased slightly in October due to higher forecasts in Brazil. Soybean utilization expectations also increased slightly, driven by higher domestic supplies in Brazil and increased demand for feed in China. Soybean trade forecasts for 2022-2023 were unchanged in October, with higher exports from Brazil balanced by lower exports from the US. Global soybean ending stocks are forecast up slightly due to higher production prospects, but ending stocks are expected to remain below the level seen in recent years.

Natural gas prices fell significantly in October, due in part to warm weather reducing demand in the Northern Hemisphere. These declines, coupled with lowered demand, drove down fertilizer prices in October, although fertilizer prices remain higher than historical averages and continue to impact purchases. Ammonia prices fell as some plants around the world resumed production following declining natural gas prices. Urea prices also fell, although concerns remain regarding natural gas prices and flooding in Nigeria that could impact production. DAP prices declined due to lower demand by major importers, and potash prices reached a 12-month low in October due to low demand and high stock levels.