Global food inflation gets reprieve as wheat to palm oil tumble

Agricultural futures fall from highs, with palm oil close to erasing 2022 gains.
Image: Bloomberg

Agricultural commodities fell as traders weighed an improved outlook for global food supplies, with signs pointing to burgeoning palm oil exports from Indonesia and a large Russian wheat crop this season.

Palm oil slumped further into a bear market, dropping about 9% on Monday and another 1.8% on Tuesday, as top shipper Indonesia ramps up shipments. That’s a turnaround from the end of April when prices hit a record closing high as the country temporarily banned palm oil exports to cool domestic food inflation and the war in Ukraine restrained sunflower oil trade.

In Chicago, wheat and corn prices fell about 2% as trading resumed after a holiday. The outlook for North American wheat supplies is picking up, while analysts continue to increase their estimates for Russia’s wheat crop, which is expected to be near or at a record after favourable weather in spring.

The declines offer some relief for consumers around the world who face rapidly increasing living costs and growing food insecurity. The United Nations’ food price index has eased from a record high in March after Russia’s invasion choked exports from Ukraine, one of the top grain and vegetable oil shippers.

“There are signs that the global food crisis may be nearing its peak,” said Chua Hak Bin, an economist at Maybank Investment Banking Group. He added that palm oil’s slump will reduce the pressure on cooking oil prices.

Indonesia is speeding up palm oil shipments to “flush out” its overflowing stockpiles, a move that will challenge cargoes from rival Malaysia. Data show Malaysia’s exports fell more than 10% in the first 20 days of June from the previous month. Volumes sank to India and Europe but increased to China.

Price hikes for edible oils in China will likely end with the restoration of palm oil supply, according to Chen Bin, a Shandong-based analyst at Shanghai Ganglian E-Commerce Holdings Co. Given that palm is the world’s most used edible oil and a key raw material in the food processing industry, the price slump will ease global food inflation significantly, she said.

© 2022 Bloomberg

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