[2023 Economic Outlook] Grain Prices Stabilize Downward... Optimism Remains Difficult

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Yujin Cho] Grain prices next year are expected to show a stable trend as negative factors such as geopolitical risks, supply chain disruptions, and abnormal weather conditions somewhat ease. However, since there are price-increasing factors scattered such as the developments in the Ukraine situation and changes in demand from China, the world's largest grain importer, the price trends will vary by grain type.

On the 13th (local time), March delivery wheat futures prices at the Chicago Board of Trade (CBOT) closed at $7.50 per bushel, down 0.63% from the previous session. Wheat prices, which surged to $12.94 on March 7, shortly after Russia's invasion of Ukraine, have recovered to the levels seen at the beginning of this year before the war. Corn and soybeans also returned to early-year levels at $6.52 and $14.84, respectively.

The extension of the "Black Sea Grain Initiative," which reopened the grain export route from Ukraine that had been halted due to the war, has eased concerns about supply disruptions, and grain prices are expected to remain stable for the time being. According to Gro Intelligence, a U.S. agricultural data company, Ukraine and Russia account for one-third of the world's wheat exports and are among the top three exporters of corn, barley, and sunflower oil worldwide. Russia agreed to resume grain exports with Ukraine in July through mediation by the United Nations and T?rkiye (Turkey), and last month, they agreed to extend the expiration date.

However, the uncertainty remains regarding whether the agreement will be extended again in March next year when the current term expires. Russia is using Western sanctions blocking grain fertilizer exports as leverage in negotiations, leading some to predict that uncertainty will continue. This year, wheat and corn prices have shown sharp fluctuations amid Russia's suspension and threats to withdraw from the Black Sea grain agreement. Megan Hesketh, senior analyst at the UK's Agriculture and Horticulture Development Board (AHDB), said, "Supply will remain tight due to the aftermath of the Ukraine war," but added, "However, the steep surge seen since March this year is unlikely to recur."

In the case of soybeans, the outlook is optimistic due to increased production. S&P Global estimated that Brazil will record a record soybean harvest next year due to expanded soybean cultivation area. Total production is expected to reach 152 million tons, a 20% increase from the previous year. The United States, which along with Brazil accounts for 70% of global soybean production, is also estimated to produce 118.3 million tons of soybeans next year, close to the five-year average production of 118.4 million tons.

The market views China's "reopening" (economic resumption), as the largest consumer of soybeans, as a factor that will pull prices down. Daniel Siqueira, a market analyst at AgRural, a Brazilian agricultural consulting firm, said, "With the easing of COVID-19 restrictions, U.S. soybean sales have turned to a rapid increase," and added, "China's demand is expected to show a greater improvement than the market anticipated."

Wheat and corn are expected to see a decrease in total production next year due to poor crop conditions. The International Grains Council (IGC) lowered its global grain production forecast for next year by 33 million tons. The IGC explained that the war's impact on production and logistics in Ukraine, a major growing region for wheat and corn, along with abnormal weather such as droughts and heavy rains in Argentina and eastern Australia, is limiting expectations for supply expansion.