Global supply of staple foods will be constrained in 2024

High food prices in recent years have prompted farmers around the world to grow more grains and oilseeds, but consumers will face reduced supplies in 2024 amid adverse weather due to El Niño, export restrictions and higher biofuel demands.

Global prices for wheat, corn and soybeans - after years of strong growth - will fall in 2023 due to easing problems in the Black Sea and fears of a global recession, although prices remain vulnerable to supply shocks and food inflation in the new year, analysts and traders say .

"The grain supply situation has certainly improved in 2023 thanks to higher harvests in some key regions that matter. But we’ve still really got all the issues sorted out," said Ole Howe, director of advisory services at agricultural brokerage IKON Commodities in Sydney.

"The impact of El Niño will last until at least April-May. Brazil will almost certainly produce less corn, and China is surprising the market by purchasing large volumes of wheat and corn on the international market."

The El Niño weather phenomenon, which brought drought to much of Asia in 2023, is forecast to persist into the first half of 2024, threatening supplies of rice, wheat, palm oil and other agricultural products from some of the world’s leading agricultural exporters and importers .

Traders and officials expect Asia’s rice production to decline in the first half of 2024 as dry planting conditions and dwindling water storage capacity are likely to lower yields.

Global rice supplies have fallen this year after an El Niño weather event cut production, prompting India, by far the world’s largest exporter, to curb supplies.

While other grain markets fell, rice prices rose to their highest level in 15 years in 2023, with quotes in some Asian export hubs rising 40-45%.

India’s next wheat harvest is also threatened by moisture stress, which could force the world’s second-biggest wheat consumer to turn to imports for the first time in six years as domestic stocks in government warehouses fell to their lowest level in seven years.

Farmers in Australia, the world’s second-largest wheat exporter, could begin planting their crops on dry soils in April 2023 after months of intense heat reduced this year’s yields and ended a three-year run of record harvests.

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

“The (wheat) supply situation in the current 2023/24 crop year is likely to worsen compared to last season,” Commerzbank wrote in a note.

"This is because exports from important producing countries are likely to be significantly lower."

On the grain supply side, production of corn, wheat and soybeans in South America is expected to improve in 2024, although erratic weather in Brazil leaves some doubt.

In Argentina, heavy rainfall over agricultural areas is likely to boost production of soybeans, corn and wheat in one of the world’s largest grain-exporting countries.

According to Argentina’s Rosario Grain Exchange (BCR), 95% of early corn crops and 75% of soybeans are in "excellent to very good" condition thanks to rains that have been falling since late October across the country’s Pampas region.

Brazil is expected to see near-record agricultural production in 2024, although estimates for the country’s soybean and corn production have been lowered in recent weeks due to dry weather.

Global palm oil production is also likely to fall next year due to dry weather driven by El Niño, supporting vegetable oil prices, which fell more than 10% in 2023. The decline in production comes amid expectations of higher demand for biodiesel and palm oil-based cooking oil production.

“We see more upside risks than downside risks,” said CoBank, a leading U.S. agricultural lender.

“Global supplies of grains and oilseeds are limited by historical standards, the Northern Hemisphere is likely to experience a strong El Niño climate-driven growing season for the first time since 2015, and global demand should return to its long-term growth trend.”