June 10, 2023

Commodity Insight: Something to talk about

This week was noticeable in my view with one news story that received precious little coverage and another that is being touted loudly by the media to the point of ad nauseam and beyond tiring.

The first item that I am referring to is the fact that world food prices have increased in value for the first time in a year. The second item is the looming and worrisome El Niño that is threatening the entire globe.

It was a month ago I penned a column for this newspaper entitled “The coming El Niño is worrisome.”

The beginning reads as follows: “The wild card for the U.S. and global agriculture markets is Mother Nature. That is how it has always been and that is how it will always be.

“And in my view, the ultimate wild card for Mother Nature is an El Niño, which takes place on average every two to seven years.

“Each of the most intense drought years in the United States — 1956-1957, 1972-1973, 1997-1998 and 2012 — were El Niño years. And that is why I view the coming El Niño this summer as worrisome.”

Since I wrote that column hardly a day goes by without a headline about El Niño. Here are just a few from the past few days:

• “El Niño is coming. Here’s what that means for weather in the U.S.”

• “El Niño is coming, and it could affect hurricane season in Florida.”

• “The oceans just reached their hottest temperature on record as El Niño looms.”

• “El Niño is forecast to return in 2023 and it could set a new temperature record.”

• “Warning of unprecedented heat waves as El Niño set to return in 2023.”

• “The return of El Niño could make the world even hotter — endangering a critical climate threshold.”

• “Brutal heat continues to grip Asia in warning for the world.”

And the list of El Niño stories published recently goes on and on.

And then there was a news item generated by the United Nations that has received scant coverage.

The news article from the Food and Agriculture Organization of the United Nations showed its world prices index in April rose for the first time in a year, though still down 20% from the record high hit in March 2022 following Russia’s invasion of Ukraine.

The FOA price index tracks the most globally traded food commodities. The FAO said the April rise reflected higher prices for sugar, meat and rice, which offset declines in cereals, dairy and vegetable oils.

“As economies recover from significant slowdowns, demand will increase, exerting upward pressure on food prices,” said the chief economist for the FAO, Maximo Torero.

From Reuters on May 5, with the headline, “World food prices rise for first time in a year,” the UN food agency said, “the sugar price index surged 17.6% from March, hitting its highest level since October 2011...

“While the meat index rose 1.3% month-on-month, dairy prices dipped 1.7%, vegetable oil prices fell 1.3% and the cereal price index shed 1.7%, with a decline in world prices of all major grains outweighing an increase in rice prices.

“While the meat index rose 1.3% month-on-month, dairy prices dipped 1.7%, vegetable oil prices fell 1.3% and the cereal price index shed 1.7%, with a decline in world prices of all major grains outweighing an increase in rice prices.

“‘The increase in rice prices is extremely worrisome and it is essential that the Black Sea initiative is renewed to avoid any other spikes in wheat and maize,’ said Torero, referring to a deal to allow the export of Ukrainian grain via the Black Sea.”

And those are the reasons the FAO said food prices are rising from a year ago. Here are my thoughts why food prices may rise higher yet.

Historically, it is not unusual for sugar prices to be a leading indicator for commodities, per se. With sugar prices at a 12-year high, it suggests even higher prices are likely.

The meat index has more to go on the upside with cattle prices destined for historic high prices and no signs of hog herd expansion in the United States.

Vegetable oil prices may have slipped recently, but that particular market is likely on the cusp of a historically powerful rally in the period ahead.

Cereal prices have recently shed value, but that, too, could change depending on the impact El Niño has on the crops in North America with the growing season at hand.

And I doubt the sea corridor now allowing safe passage of Ukrainian grain through the Black Sea will be approved by Russia.

As a side note, apparently I hit a milestone of sorts on Twitter — @commodityinsite. I have not been this surprised since I dreamed I ate a giant marshmallow and woke up my pillow was gone!

To celebrate, I am offering 30% off my twice-a-day newsletter, Commodity Insite, and my books through the end of May. Head to commodityinsite.com and use the code “Soybeans” at the checkout point.

With the entire growing season ahead and ocean temperatures at all-time record highs, the odds are great the coming and worrisome El Niño will be a market mover somewhere on the globe. My newsletter will help you to keep informed.