Uncertainty looms over future price of grain

Skyrocketing grain prices caused by adverse weather conditions in the largest producing countries could see prices in Malta soar, according to a leading commodities market analyst.

“Since most of our food is imported, there is no way prices can be controlled internally. Importers could end up buying more expensive products while having to pass these prices on to consumers,” Steve Cachia said.

A commodities market analyst, Mr Cachia is consultant for one of the leading grain brokerage companies in Brazil.

The company, Cerealpar, does business in the domestic and international markets, trading in about six million tons of soy beans, soy meal, soy oil, corn, sorghum and wheat. Its clients include farmers, cooperatives, soybean crushing plants, trading companies and commodity investment funds.

This month, the price of wheat rose by almost 80 per cent, corn by 30 per cent and soy bean by 20 per cent, among others, after production came to a standstill with drought in Russia and the Ukraine and floods in Canada and Pakistan.

“This means farmers who did not lose their crops to the weather can sell their products at better prices while bullish market players also managed to increase their profits,” Mr Cachia said.

“However, this also means the production costs of most food items have increased and will have to be passed on to the end consumer, possibly meaning inflationary pressure in the coming months,” he added.

Since grain is widely used to manufacture a myriad of products, ranging from food to industrial products, the skyrocketing prices could ultimately affect staple food, including bread, whose prices last rose two years ago.

Foreign governments have already braced themselves for the possible inflationary pressures with consumers likely to start paying more for food, household products and fuel.

“During these last years, agricultural commodities have become more volatile and, although there is never a guarantee in the market as to which direction it will be going, supply usually responds very quickly to price increases,” explained Mr Cachia.

“At present, world grain supply seems ample but it is definitely lower than what was expected to be harvested some months ago.” Moreover, a weather phenomenon that struck South America has made yield forecasts uncertain, despite farmers’ efforts to increase their planting area. “This could mean another round of production losses and, consequently, another period of price rallies,” he said.

However, should the harvest be good, it would contribute to balancing out demand and supply as the US alone is expected to harvest a record crop in the coming weeks, possibly pushing prices down to a seasonal low but this is not enough as South America is experiencing severe drought.

The last commodity boom market happened two years ago, when strong demand and supply shortages led to an unprecedented explosion in agricultural prices causing riots in some countries.

“But, as always, the market responded quickly to these high prices, farmers increased their planting area, the weather was favourable and the supply side once again managed to recover and stocks were rebuilt, forcing prices to go back down,” Mr Cachia said.

Russia announced this week its agriculture industry faced losses of over a $1 billion after the drought destroyed over a quarter of its crops, spurring the government to ban any foreign grain exports earlier this month as harvest forecasts were slashed.