Drought in US lowers food prices

Both corn and soybeans are used as feed for pigs and chickens. Rising prices for maize and soybeans will further push up food inflation.

FEGRA, the Belgian grain traders’ federation, is monitoring the situation closely. “It’s a general weather market, so it’s too early to draw conclusions,” says Fegra’s Gisele Fichefed. “We lost corn in America anyway. The market is at 175bu/acre (10,984 kg/ha, ed.), which is 15 million tons less than the US Department of Agriculture’s current estimate. It is currently halting price declines from this spring and has a price-support effect. The market sees a risk and that risk needs to be priced. For now, the demand side doesn’t seem to be following internationally. The second crop of Brazilian corn is in full swing and could provide plenty of corn to market in August and October.

According to Fichefet, it is still possible to get the necessary rain in time for the corn belt to bloom. Soybean flowers fall in the second half of July and early August, so this is a guess at this point.

First observations show a slight increase in European grain prices. “The main reference for these prices is Euronext wheat, which has increased from 215 euros at the end of May to 235 euros now,” says Fichefed. “Last year at this time, the deal was still around 330 euros.”

“Grain prices have been falling since November this year,” Fichefet adds. “The situation in the US and, to a lesser extent, China has halted this decline.”

And the evolution now depends on the weather in July in the US and China. “Rain can do a lot more,” Fichefet says. “The European barley and wheat harvest is just around the corner. It will be very good, but slightly lower than initially thought due to drought in Scandinavia, Germany, Poland and some Baltic states in May and June.

Besides climate, there are other factors that affect prices. “Since Russian wheat is currently 30 euros cheaper than wheat from the EU, this is weighing on our local prices. Russia is the world market leader in wheat exports. The current price differential will make it difficult for the EU to meet international demand.

“If the drought in China continues, it will lead to additional Chinese demand for European wheat and barley,” Fichefed concludes.

This is not the case for maize, as China is more likely to buy from Brazil, the US and Ukraine.