Food prices in the world in 2022 behave completely differently than experts predicted a little earlier. Panic echoes are heard from all sides. Many have said and continue to assert that absolutely all products on the world market have grown in value, and ahead of us are some mind-boggling prices and total hunger.
But what is really happening? Judging by the statistics, over the past 3 months there has been a steady decline in prices for many categories of food products. Let's figure out what really becomes more expensive and what becomes cheaper, and what are the adequate reasons for this.
What world prices are usually meant
When someone in the media talks about prices within the country, they mean the cost of what is offered in stores, markets, as well as the prices of wholesalers. The average price tag of actual purchases by citizens is also constantly changing. However, this happens most often at a different speed, because the population can simply gradually begin to switch to cheaper products. Some of these criteria are covered, while others are left without due attention. Hence the discrepancies in the testimony of different sources.
But world prices for goods hide the data of transactions taking place on exchange. We are talking about futures contracts for oil, grain and other products. And these prices are not equivalent to the cost of actually supplying this or that food to a retail store. They are used in their work only by traders - direct market participants. For futures, there is no real transfer of goods. This is just a financial instrument with which you can earn (well, or not earn if you do not conduct a competent technical analysis of the asset)
Movement on stock market happens all year round. At the same time, prices are most often formed solely on the basis of published news. For example, the actual crop has not yet been harvested, but information has been received that the sown area will be significantly increased this season. The logic is the following:
- more land;
- sow more;
- collect more;
- more finished products;
- lower price;
- the price of the futures contract goes down;
- published news about the price reduction.
There is also a reverse process, when fuel becomes more expensive or some obstacles arise for carriers. This may well lead to the fact that in the future prices for products in the world for consumers will begin to rise. Accordingly, the price of a futures contract begins its upward movement right now, and you can start buying this instrument.
How have world prices changed recently and why?
In fact, the cost of food has long been on a steady upward trend. Moreover, the movement is extremely uneven. To date, global food prices have reached their highest level since 1990. It was then that food indices began to be calculated.
Many experts publish the opinion that the rise in prices is quite logical due to the special operation in Ukraine and the absence of any accurate forecasts for its completion. But prices began to rise much earlier. If you study the chart, it becomes clear that they began to move intensively already in the middle of 2020.
When covid appeared in the world, and with it a number of restrictions (it was then that the first opinions about the coming famine arose), many states that are the largest grain producers began to reduce the volume of export supplies so as not to inadvertently leave their country without food. Vietnam is a great example. He introduced a restriction on the export of rice. But it was this state that accounted for approximately 16% of all supplies of this crop in the world. Russia also did not stand aside. The Russian Federation decided to reduce the volume of exports of corn, wheat and other types of grain.
What comes out of it. As soon as a cut in the supply of something is planned somewhere in the world, this is guaranteed to lead to an increase in the price of the resource in the near future. What we are seeing today.
And then began the global recovery of the world economy, which suffered from covid outbreaks and the suspension of the activities of large enterprises against their background. Experts published opinions in which they expected massive demand for absolutely all goods, including products. What triggered it? An increase in demand means an opportunity for current price increases for future supplies of products.
There is another important factor. Since the beginning of the coronavirus pandemic, transport sector spending has skyrocketed. If you look at the data for May 2020, it becomes clear that the freight indicator alone has increased by almost 400%.
Why else are food prices rising in the world? Another reason is the cost of fertilizers. Natural gas has risen in price (according to the World Bank, by as much as 600%), therefore, the dynamics of nitrogen fertilizers has also gone up. This is the reason for the rise in prices for many agricultural crops, as well as the product lines that are produced from them.
And then came the news from Ukraine. As an example, I would like to cite one of the official headlines of the reputable Bloomberg agency: "Food prices are at record highs and now the war is going to make them a lot worse." The statement is very logical. As a result, March 2022 was marked by an unprecedented increase in the food index. If literally a month before that it was at the level of 141,4 points, then after only 30 days it reached the level of 159,3.
And then something interesting began. Already since the middle of spring of this year, in the Russian-speaking segment of the Internet, as well as in other media, they began to portend an even greater increase in food prices around the world. There was talk of a total famine, which will certainly affect even the most developed countries.
But the world markets have taken a very different path. Food prices have been falling for the third month in a row. Let's turn to the latest data for June 2022:
- the price index for vegetable oils decreased (fell by 7,6% compared to May);
- the grain index, although it turned out to be significantly higher than in the previous year, decreased by 7,2 points compared to May;
- the sugar price index fell 2,6% to its lowest level since February (Brazil increased production capacity);
- world wheat prices decreased by 5,7% compared to May (but compared to 2021, they still turned out to be much higher);
- the price index for dairy products rose by 4,1%, but this is quite logically justified by the negative impact of the heat, as well as increased demand from European countries;
- the meat price index showed a record increase compared to last year's June - by 12,7% (against May 2022, only by 1,7%).
The overall food index was still lower by 3,7 points compared to May. But when compared with the data for June 2021, the growth is obvious - plus 29 points.
So why are prices dropping? I remind you that we are not talking about the cost of products in stores. World prices rise and fall precisely within the framework of markets. But in general, most of the forecasts were still more optimistic. Therefore, the decline in food prices on a global scale was an event more than expected and logical for a number of reasons:
- weather conditions have improved in Europe, North America and Asia, therefore, it can be expected that there will be higher harvests that can cover the shortage of products formed due to problems with Ukraine;
- investors have been actively selling off even the most promising securities since the Federal Reserve hiked interest rates (meanwhile, soybean, wheat and corn futures prices have declined compared to February);
- there is reason to believe that Brazil will have a colossal wheat harvest this year, as the largest areas for the last 32 years will be sown;
- shares of fertilizer suppliers have fallen, so no one expects a shortage;
- in the United States, a Department of Agriculture report announced that there was an increase in corn acreage estimates;
- Indonesia, which is a key producer of vegetable oil, is steadily increasing its export volumes.
Of course, not all news is so good. From Italy comes information about severe drought and damaged fields. This cannot but affect the rise in prices for products in the near future.
Expert opinion
Leading analysts are also optimistic:
- the forecast for rice has a very small minus - only 0,4% compared to last year;
- the grain forecast for 2022/2023 is higher than in May, but still slightly lower (by 2,4%) compared to 2021/2022 volumes;
- world stocks of grain crops have practically not changed when compared with 2021 - only minus 0,6%;
- the forecast for world rice use has improved, but by 2021 it is still 0,1% lower;
- world wheat production decreased by only 1% in total, if you look at the data of the last reporting period.
Other indicators are approximately in a similar dynamics.
So, what conclusions can be drawn from all this. A sharp change in food prices in the world may be due to the release of important economic news or forecasts. But again, this applies specifically to the value of the futures contracts associated with them. At the moment, the estimated volumes of crops and other food will not allow us to face hunger. A strong rise in prices is also not expected.
