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July Food Prices Fell Substantially, But The Relief May Be Temporary.

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Wheat and vegetable oil prices, items necessary for most food preparation, fell considerably in July from the previous month, according to the FAO.

FAO added that while the decline in food prices “from very high levels” is “welcome,” the good news is uncertain.

FAO head economist Maximo Torero said high fertilizer costs, a grim global economic outlook, and currency volatility all threaten global food security.

The FAO food price index, which analyzes monthly changes in food prices, declined 8.6% in July. June’s index dropped 2.3% month-over-month.

July’s index was 13.1% higher than July 2021.
Futures suggest short-term price drops. and

Futures fell from March highs to 2022 pricing.

Friday’s wheat contracts closed at $775.75 a bushel, down from March’s $1,294 and around January’s $758.
Analysts cited a mix of demand and supply reasons for the drop in food prices: Ukraine and Russia’s agreement to resume grain exports through the Black Sea after months of embargo; better-than-expected crop harvests; and the strong U.S. dollar.

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Rob Vos, director of markets, trade, and institutions at the International Food Policy Research Institute, said the US and Australia will provide record wheat crops this year, which will enhance supplies because Ukraine and Russia have cut shipments.

Vos added that since commodities are purchased in U.S. dollars, a stronger dollar decreases staple prices. When the dollar is expensive, traders cut nominal commodity prices.

The U.N.-backed Ukraine-Russia pact also cooled the market. Ukraine was the sixth-largest wheat exporter in 2021, contributing for 10% of the global market.

First grain cargo since invasion left Odessa last Monday with 26,000 tons of maize.
Global doubt about Russia’s commitment lingers.

Russia fired a missile on Odesa following the U.N.-brokered accord in late July.

Vos said freight and insurance firms may still consider it’s too risky to carry grain out of a war zone. Food prices remain volatile, and every new shock can generate price increases.

“To make a difference, we need at least 30 or 40 cargoes every month to move the stored grains in Ukraine and the next harvest,” added Vos.

To stabilize markets, the accord must hold until the second part of the year, when Ukraine exports the most.
Even with the existing deal, agricultural Ukrainian land may continue to be devastated “as long as the fighting continues,” resulting in even less crop yield next year, Rabobank’s Carlos Mera said.

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Mera: “Once this [grain] corridor is over, we may see more price increases.” Consumers could witness future price hikes because it takes three to nine months for commodity pricing changes to be reflected in supermarkets.

The battle zone must also export adequate grain soon.

“It’s time to work. John Rich, executive chairman of Ukrainian poultry major Myronivsky Hliboproduct (MHP), was quoted as saying this in a recent interview.
“Hungry people feel hungry after a week”

Fitch Ratings analysts stated in a report earlier this month that an increase in fertilizer prices, which decreased lately but are nearly double 2020 levels, could cause grain prices to rise again.

Russia’s gas supply restrictions have boosted European gas costs. Natural gas is in nitrogen-based fertilizers. La Nina might hamper grain harvests later this year, they said.
Falling food prices aren’t all positive. Analysts say dealers and investors are factoring in recessionary fears when pricing staples.

The global manufacturing purchasing managers’ index is falling, and the U.S. Federal Reserve seems determined to raise interest rates to limit inflation, even if it produces a recession, Fitch stated.
FAO index shows wheat prices declined 11.5% month-over-month. Wheat prices plummeted 14.5% due to the Russia-Ukraine grain deal and improved yields in the Northern Hemisphere, the FAO stated.

Vegetable oil prices decreased 19.2% month on month, a 10-month low, due to plentiful Indonesian palm oil shipments, reduced crude oil prices, and lack of demand for sunflower oil.

Sugar prices fell 3.8% to a five-month low due to declining demand, a lower Brazilian real, and greater Brazilian and Indian supply.

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Milk and meat costs fell 2.5% and 0.5%.

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