The Zhitong Finance app learned that high food prices in recent years have prompted farmers around the world to grow more grain 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 that due to the easing of bottlenecks in the Black Sea and concerns about the global recession, global prices of wheat, corn and soybeans will end in 2023 after several years of strong increases. However, prices remain vulnerable to supply shocks and food inflation in the new year.

Ole Hue, head of consulting services at agricultural brokerage firm IKON Commodities in Sydney, said: “In 2023, the food supply situation did improve, and grain production increased in some key regions. But we haven't really gotten out of our predicament yet.”

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

The El Niño incident and food production

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

Traders and relevant country officials expect rice production in Asia 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, the global supply of rice has tightened this year, which prompted India, the world's largest exporter of rice to date, to restrict exports.

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

Meanwhile, India's next wheat crop is 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 may force the world's second-largest wheat consumer to seek imports for the first time in six years.

Other shocks

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

This may 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 current (wheat) supply situation for the 2023/24 crop year is likely to deteriorate. This is because exports from important producer countries are likely to fall sharply.”

However, in terms of good food supply, South America's corn, wheat and soybean production is expected to improve in 2024, even though the unstable weather in Brazil has raised some doubts.

In Argentina, one of the world's largest food exporters, abundant rainfall in the country's agricultural heartland is also likely to boost production of soybeans, corn, and wheat.

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

CoBank, a major lender in the US agricultural sector, said: “We think the risk of rising prices is greater than the risk of falling.”

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