Market Speaks: Global Food Prices Could Surprise On Upside Given High Uncertainty Due To Russia-Ukraine War

12 Oct 2022 , 12:15 PM

The IMF stated in a latest update that global food commodity prices surged after Russia’s invasion of Ukraine but corrected to prewar levels in June and July, halting a two-year rally (see following sections). Improved supply conditions and a gradual end to Russia’s blockade of Ukrainian grain exports drove the decline, along with macroeconomic factors— including rising interest rates and global recession concerns. Looking ahead, risks of renewed export restrictions (such as Indonesia’s April 2022 ban on palm oil exports), droughts in part of China and the US, and pass-through from higher fertilizer prices–– which reflect the reduced availability of fertilizers produced in Belarus and Russia––tilt the balance of risks to the upside. The outlook for domestic food price inflation remains uncertain, as global food prices could surprise again on the upside, given the high uncertainty about the impact of the war in Ukraine and weather events and the delayed effect of high fertilizer prices. Current estimates already suggest a negative shock for global cereal production equivalent to about a 0.6 standard deviation in cereal growth for 2022 —contributing to a 23 percent rise in cereal prices this year and outweighing the effects of higher interest rates on food price inflation.Powered by Commodity Insights