Plunging global food and fuel costs bring little relief to poor countries

Costs are down from peak in Ukraine war, but still up compared to last year

Grain silos containing still-burning grain were bombed in Zasilya, Ukraine, in July.
Grain silos containing still-burning grain were bombed in Zasilya, Ukraine, in July. (Wojciech Grzedzinski/Washington Post)
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Many of the global prices for food, fuel and fertilizer that surged when Russia invaded Ukraine have returned to pre-war levels, with policymakers warning of continued risks of famine and financial crisis in developing countries. Yet we ignore the most dire predictions.

Russia’s attack on Ukraine on February 24 sent shockwaves through commodity markets. Since then, however, fears that the war would cut off all exports through the Black Sea have proven unfounded.

For months, Russian grain cargoes have flowed from the Novorossiysk docks to customers in Africa and the Middle East. Also, limited grain shipments from the Ukrainian port of Odessa resumed on August 1 under a UN-brokered deal.

Pressure on commodities markets has eased as Wall Street speculators began selling their holdings in the wake of the Federal Reserve’s interest rate hikes.

Wheat is cheaper than when the war started. Global benchmark Brent crude is hovering around $97 a barrel, mid-February levels. And urea fertilizer prices, which nearly doubled in the first weeks of the war, have returned to pre-war levels.

However, analysts say the market could turn around again and will likely remain volatile until next year.

“The worst never happened. said. “We could see more volatility this fall.”

Avoiding a deeper global crisis will depend on the interplay between government policies in many countries, climate, unpredictable conflicts in Europe and global diplomacy.

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Russia has already fired one missile at a grain terminal in Odessa, raising questions about whether a deal to resume shipments from Ukraine will be reached. Extreme weather conditions, including years of drought in the Horn of Africa, threaten harvests on multiple continents. And a possible ban on Russian energy shipments to European customers later this year could further exacerbate the cost of natural gas, which has already pushed up some fertilizer prices.

Still, the situation is improving. Earlier this year, the war between neighboring countries Russia and Ukraine, which account for more than a quarter of his world traded wheat, sent grain prices soaring 63% in his less than two weeks. At the same time, the price of one type of nitrogen-based fertilizer nearly doubled and oil jumped to almost $128 per barrel.

The ensuing price decline brought little relief to countries that depend on global markets for their key commodities.

A third of the 153 countries tracked by the World Food Program recorded annual food inflation of at least 15% in the three months to July 31, said economists at the UN branch in Rome. Friederike Gleb says.

Food prices surged 332% in Lebanon, 87% in Iran, and 95% in food prices in Turkey.

“Lower prices are definitely good news for global food security,” Greb said. “But given what’s happening on the ground, there’s no reason to worry less.”

According to the International Monetary Fund, it can take 10-12 months for changes in global commodity prices to be reflected in local markets.

In that case, the decline is often overwhelmed by the impact of currency depreciation in the importing country. The Federal Reserve’s multiple rate hikes this year have boosted the dollar against most other currencies.

Currencies of Zimbabwe, South Sudan, Turkey, Sri Lanka, Laos and Malawi have fallen by at least 25% against the dollar. That is, in effect, price increases for local businesses or governments buying global goods priced in US dollars.

“We are still in huge danger,” Greb said.

A total of 345 million people in 82 countries around the world are at risk of dying from food insecurity, according to the World Food Programme, more than double the number before the pandemic. Despite recent price easing in commodity markets, food, fuel and fertilizers remain significantly more expensive than they were a year ago.

“It’s too early to say the worst is past,” said Ngozi Okonjo Iweala, director-general of the World Trade Organization.

The rise in prices earlier this year was amplified by the financial bets of speculators. In February, before the war began, money managers were betting on the futures market that Chicago Trade Commission wheat prices would fall, according to data from the Commodity Futures Trading Company.

But by early March, the market flock had shifted to big bets on higher prices. In his mid-May, just after his second rate hike in three months, the Fed aimed to bring inflation down from his 8.5% to his 2% target level. scale has reached its peak.

“If the Fed says it’s going back to 2%, it needs to get out of the commodity market,” said Dan Basse, an economist at AgResource in Chicago.

The European Central Bank has taken a big step to deal with rising inflation

Each commodity market is also shaped by different factors. Oil prices have experienced their biggest drop since early June on concerns that a global recession will reduce demand for oil.

The outlook for wheat prices was particularly cloudy in the first months of the war after Russia stopped regularly reporting export data to the United Nations Comtrade database, according to Joseph Glauber, a senior fellow at the International Food Policy Institute. We approximated the missing export value by analyzing purchase reports from Moscow customers.

“Exports from Russia this year are showing about the same level as last year,” he said. “Russian trade is going well.”

These better-than-expected Russian exports are one reason why wheat prices are falling. A deal agreed last month by Russian, Ukrainian and Turkish diplomats facilitated the shipment of some of the 20 million tons of grain trapped in Ukraine by the war.

According to the United Nations database, 14 ships carrying corn, sunflower oil and soybeans have set sail from Ukrainian ports this month. The ships dock in Turkey, where inspectors check food items for hidden weapons before heading to destinations such as Lebanon, China, Italy and South Korea.

There is a balancing act in increasing the flow of Ukrainian grain to developing countries desperately needed to stave off hunger. Wheat prices could fall just as Ukrainian farmers, who are already paying higher fertilizer and seed costs, try to recoup their investment, said Maximo Torello, Ukraine’s chief economist. Stated. United Nations Food and Agriculture Organization.

united nations food Officials are in talks with the International Monetary Fund and others about potential funding for assistance, he said.

A related agreement should allow Russia’s ammonia fertilizer to be exported via pipeline to Ukraine’s port of Pivdenny, said Chris Lawson, chief fertilizer analyst at the CRU Group.

Prices for urea, a widely used nitrogen fertilizer, have halved from their April peak of $940 per tonne. But prices have risen again since mid-June as the price of natural gas, the primary fuel used to produce nutrients for such crops, rises. somewhat.

Lawson said the price of potash, another fertilizer, fell after Belarus, Russia’s ally and a major global producer, resumed limited shipments. About 100,000 tonnes of Belarusian potash is shipped to the global market each month, well below the pre-war norm of about 1 million tonnes, but above analyst expectations.

Farmers also responded to the first post-war price increase by reducing their use of both potash and phosphate, he said.

“Things are still really, really tight. But it wasn’t as bad as Armageddon that people were expecting,” Lawson said.

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In southeastern Africa, farmers in Malawi are struggling to get enough fertilizer for the upcoming planting season, and the supplies they get will cost more than twice as much as they did in 2020, says the nonprofit African Fertilizer. And Agribusiness Malawi Country Director Sheila Keino said. partnership.

A 25% devaluation of the local currency, the kwacha, has made imports more expensive, putting pressure on the households of small farmers, who make up the bulk of the country’s labor force.

“It will be difficult,” said Keino. “Everything has gone up, but no one has money in their pockets.

If farmers in developing countries can’t afford to use enough fertilizer, next year’s harvest could drop and the food crisis could extend into its second year.

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