Prices for wheat, corn and other commodities that form the basis of much of the world’s food supply fell sharply this summer.
This is a welcome signal for consumers dealing with high grocery bills and for investors hoping inflation will take a toll on the economy as a whole. Wheat prices have fallen about 40% since the spring, and corn prices have fallen about 25%.
Tom Martin, Senior Portfolio Manager at Globalt Investments, said: “Inflationary pressures will subside as we slow down and the economy appears to be slowing in general.”
Soaring food and energy prices have led to the highest inflation in 40 years this year. Steady demand combined with constrained supply set inflation on an upward trajectory. The situation worsened when Russia invaded Ukraine in February, hampering the production and export of wheat and other crops, as well as the production of oil and natural gas.
Currently, prices are falling as demand and supply begin to balance out in a global economic slowdown. Ukraine and Russia reached agreement on grain exports, helping to further ease global supply shortages. Ukraine exports about 10% of the world’s wheat and maize.
The U.S. Department of Agriculture predicts increased wheat production this year and the potential for a record soybean harvest.
Falling commodity prices could also help major food producers dealing with rising manufacturing costs such as cereals and other processed foods. Both Conagra and Mondelez have seen margin declines over the past few quarters.
Conagra Chief Executive Sean Connolly says profit margins are likely to fall if another episode of extreme inflation hits, but if inflation or deflation slows, it could push profits to the upper end of the company’s target. said it was possible.
“These are volatile times,” he told investors on a conference call following the company’s latest financial results. “So we can’t tell you exactly where we’re going to land.”
Investors are watching the price drop closely, trying to determine the future course of inflation and whether the Federal Reserve will ease its aggressive rate hikes.
The US economy has contracted in the first half of 2022, but consumer spending remains strong and unemployment is at a record low.
The Federal Reserve has said it intends to keep raising interest rates until it is certain inflation is starting to cool. Wall Street hopes inflation will peak and begin to cool due to sustained declines in commodity prices, from energy to food.