Grain prices extended and accelerated their recent run of gains with the Bloomberg Grains Index reaching a fresh eight-year high after recording an 8% gain this week. The major crop futures contracts traded in Chicago all reached fresh multi-year highs. Corn traded above $6 per bushel, soybeans above $15 and wheat above $7. All these fresh highs being driven by a combination of already low stock levels due to rampant Chinese demand and a record cold snap delaying U.S. planting while hurting some winter wheat areas. To top it all up, Brazil is recording declining crop conditions due to drought.
The USDA’s Beijing office on Wednesday said China would import a record 28 million tons of corn during the current season in order to meet a shortage of supplies after China replenished is hog herds following the deadly African swine fewer outbreak. For the 2021-22 crop season the USDA expects demand will drop to 15 million tons as China attempts to reduce its reliance on foreign grains while also recommending a reduction of corn and soymeal in animal feed.
With this in mind and considering the prospect, weather permitting, for a bumper Northern Hemisphere crop this summer, new crop prices trade at a rising discount to old crop prices. For example, both corn and soybeans for delivery later in the year trade around 12% below the prices currently being offered in the market for ready available stocks.
Using the Bloomberg Agriculture spot index which tracks the futures prices of several major food commodities from grains to softs and livestock, the annual rate of change is currently running close 70%. How these (wholesale) increases which impact the cost to the global consumer (retail) can be seen in monthly data from the UN FAO. According to its global food price index which is derived from more than 90 different price quotes, the annual rise in global food prices reached 24.6% in March.
With the latest rise in agriculture commodities, this important gauge looks set to rise further over the coming months, thereby continuing to stoke inflationary concerns, especially in those countries that can least afford it.