The Zhitong Finance App learned that high food prices in recent years have prompted farmers around the world to grow more grains and oilseeds, but due to unfavorable El Niño weather, export restrictions, and higher biofuel requirements, analysts believe that consumers may face a tighter supply situation in 2024.

Analysts and traders said global wheat, corn and soybean prices will end in 2023 after several years of strong increases due to easing of bottlenecks in the Black Sea and concerns about a global recession. However, prices are still vulnerable to supply shocks and food inflation in the new year.

Ole Houe, head of consulting services at agricultural brokerage firm IKON Commodities in Sydney, said: “In 2023, the food supply situation has indeed improved, and food production has increased in some key regions. But we haven't really come out of trouble yet.”

“We will face the El Niño event until at least April to May next year. Brazil will almost certainly reduce corn production, and China is buying large quantities of wheat and corn from the international market, which surprised the market.”

The El Niño incident and food production

This year, the El Niño event caused droughts in most parts of Asia, and this phenomenon is expected to continue in the first half of 2024, putting at risk the supply of rice, wheat, palm oil and other agricultural products to some of the world's major importers and exporters.

Traders and relevant national officials expect Asian rice production to decline in the first half of 2024 due to arid growing conditions and shrinking reservoirs that may reduce production.

After production declined due to the El Niño incident, global rice supply has tightened this year, which has prompted India, the world's largest exporter of rice so far, to restrict exports.

In 2023, the price of rice rose to its highest level in 15 years, and prices in some Asian export centers increased by 40%-45%.

Meanwhile, India's next wheat crop is also threatened by water shortages. As domestic stocks in the country's state-owned wheat warehouses have fallen to their lowest level in seven years, this could force the world's second-largest wheat consumer to seek imports for the first time in six years.

Other shocks

Also, next April, farmers in Australia, the world's second-largest wheat exporter, may face dry soil problems. Previously, months of high temperatures curtailed the country's wheat production this year.

This could prompt buyers, including China and Indonesia, to seek larger quantities of wheat from other exporters in North America, Europe, and the Black Sea region.

Commerzbank wrote in a report: “Compared with the previous crop season, the (wheat) supply situation for the current 2023/24 crop year is likely to deteriorate. This is because exports from important producers are likely to drop significantly.”

However, judging from the good food supply side, production of corn, wheat and soybeans in South America is expected to improve in 2024, although the unstable weather in Brazil has raised some doubts.

In Argentina, as one of the world's largest exporters of food, abundant rainfall in the country's agricultural heartland may also boost soybean, corn, and wheat production.

According to data from Argentina's Rosario Grain Exchange (BCR), 95% of early-sown corn and 75% of soybeans are in “excellent” to “very good” condition due to rainfall in the Pampas region of the country since the end of October.

Brazil's agricultural production in 2024 is also expected to be close to record levels, although the country's soybean and corn production is estimated to have declined in recent weeks due to dry weather.

Due to the arid El Niño weather, global palm oil production is likely to decline next year, which supports cooking oil prices (cooking oil prices fell by more than 10% in 2023). As production falls, demand for palm oil-based biodiesel and cooking oil is expected to increase.

“We think the risk of rising prices is greater than the risk of falling,” said CoBank, the main lender to the US agriculture sector.

“From a historical perspective, global stocks of food and oilseeds are tight. The northern hemisphere may experience the first strong El Niño weather pattern since 2015. The dollar should continue its recent decline, and global demand should return to a long-term growth trend.”