5 important points to understand the volatility in the markets

Amid the many upheavals caused by the Russian war in Ukraine, the threat of a world food crisis is emerging as one of the main threats every day. As food becomes a weapon in its own right, La Tribune looks at the key factors that are upending world grain markets, a staple for global food security.

  • Uncertain development of the situation in Ukraine

He explains that the risk of famine in the countries most dependent on grain imports, which the UN has been warning about for months, is not due to the shortage of quantities that exist today. FranceAgriMer) Henri Brichart. Rather, it is due to the rise in prices in international markets since the start of the war between Russia and Ukraine, which together account for a third of world wheat trade and are also major exporters of maize and fertilizers.

The Food and Agriculture Organization of the United Nations (FAO) also said in a report (“Food Outlook”) released Thursday that global spending on food imports is expected to increase by $51 billion in 2022 compared to 2021. will reach $1,800 billion), $49 billion “the only truth of rising prices”. The UN organization states that the result is still “too many vulnerable countries spending more without getting more food”.

This increase is mainly due to uncertainties regarding the situation in Ukraine, where twenty million tons of grain are stored and struggling to leave the country since the beginning of the war, due to damage to infrastructure, but most of all because of blockade by Russia. From the Ukrainian Black Sea ports. Attempts have been made to export these grains by rail or river since May, but their potential is very limited compared to shipping capacity. And even if ongoing attempts at agreements to create safe sea corridors for grains are successful, “it would take a few weeks to see the effects”, Highlights Marc Zribi, Head of Grain and Sugar Division at FranceAgriMer. Sea freight prices were added to this, due to the increase in insurance prices.

Many uncertainties also affect the future Ukrainian harvest. According to the Grain Association of Ukraine, war-affected wheat production is expected to fall by 40% for the 2022-23 season. According to the same source, that of corn should decrease by 30%.

  • The whims of global production

However, other fears are also putting pressure on global markets and prices. Global production in 2022 may indeed be affected by weather factors. Indeed, various countries have been affected by a great drought in all latitudes and regions of the world. Thus, according to the FAO, in 2022 “World production of major cereal species expected to decline for the first time in four years”, and their consumption is expected to decline for the first time in 20 years. However, the use of cereals for animal feed will decrease first of all, while for human food on the other hand, it will be predicted to be stable.

Added to this is the risk of national export restrictions that could further distort markets. India has already used it for wheat and sugar to limit domestic inflation. A potential destabilizing factor is the evolution of huge Chinese grain stocks, which seek to provide domestic supply in a country that imports half of its needs, while at the same time protecting itself against international tensions.

  • Possible contribution of France

The meteorological hazard also focuses on French production. After a particularly hot and dry May, the onset of rains and near seasonal average temperatures gave French grains some respite. But their impact will vary greatly depending on the type and stage of the crop, soils, regions and the subsequent evolution of climate, says FranceAgriMer.

“The harvest month will be June,” says Catherine Cauchard. Céré’Obs project manager stressed that the effects of the storms in early June have not yet been evaluated.

But expected in 2021-2022 “In any case higher than domestic demand, knowing that France exports half of its production on average”, Explain Henri Brichart.

“Therefore, it will contribute to offsetting the decline in Ukrainian production,” said the head of FranceAgriMer.

However, precise data on the next campaign will only be available at the end of summer.

  • Fertilizer Price Fluctuations

The development of the prices of nitrogen fertilizers necessary for intensive crops will also affect the prices of grains. After taking off in recent months – even before the Russo-Ukrainian war – due to rising gas prices for their production, supply difficulties linked to the Russo-Ukrainian war stabilized last month. Prices have tripled in one year, due to the slowdown in demand, respectively, due to the very high levels they have reached.

“Some farmers tend to switch to crops that require less fertilizer,” analyzes Marc Zibri.

However, a selection that could also trigger lower yields for subsequent harvests worries FAO.

But FranceAgriMer believes fertilizers should remain very expensive as energy prices will remain high. Supply challenges will also remain, as Russia is one of the world’s leading exporters and its international transactions are blocked by international sanctions – but not targeting agricultural products.

  • Unpredictability of price movements

Therefore, all these factors weigh on the evolution of prices, which are very volatile. After the initial increase, world grain prices fell last week, then rose again due to the latest news on the geopolitical or meteorological situation.

In any case, demand from some countries, which are faced with very high prices, do not have very urgent needs and are looking for financing solutions, also comes to a halt in the hope of the next decline. But he warns that the situation could develop rapidly in all directions. FranceAgriMer. The agency also warns French grain farmers of the risk of their income falling, while costs, particularly those related to the purchase of fertilizers, may remain too high.