Global Food Inflation Gets Reprieve as Wheat and Oilseeds Tumble
Comment of the Day

June 21 2022

Commentary by Eoin Treacy

Global Food Inflation Gets Reprieve as Wheat and Oilseeds Tumble

This article from Bloomberg may be of interest to subscribers. Here is a section:

Agricultural commodities fell, offering some reprieve to rampant food inflation, as traders weigh incoming data on harvests and looming recessions in some major economies.

Wheat harvests are kicking off across the Northern Hemisphere, with analysts continuing to increase production estimates for some key growers like Russia after favorable weather. The US will give an update on its winter-wheat harvest progress later on Tuesday.

The prospect of recessions is also weighing on commodity prices, according to analyst Agritel. Subdued economies can mean lower fuel use or spur shoppers to cut back on higher-priced foods like meat. Chicago soybean oil is headed for its longest retreat since 2019, Paris rapeseed erased its year-to-date gain and Malaysian palm oil recently entered a bear market as rival producer Indonesia ramps up exports.

Eoin Treacy's view

The oldest adage from the commodity market is the cure for high prices is high prices. I was in two different supermarkets yesterday and failed to find pasta for sale. Meanwhile the supply of instant noodles does not appear to have been impacted, probably because they are higher margin products. The leap in wheat prices and price sensitivity of consumers means demand destruction may already be setting in.
The point I have been making for months is nothing has happened to impede Russia’s wheat production.  It will inevitably find a route to market on a “needs must” basis. Wheat has been ranging in the region of the 2008 peak for the last couple of months and is now contracting; falling through the psychological 1000¢ level today.
Soybeans’ continuation chart has a step lower because of the roll on a backwardation. Meanwhile the November contract is easing back from the failed break to new highs earlier this month.
Fewer corn acres are being planted and more ethanol is being used in gasoline production, yet the price is falling. It has now almost fully unwound the overbought condition relative to the 200-day MA but will need to bounce in an emphatic fashion to signal a return to demand dominance.
Oats is also testing the region of the 200-day MA following a shallow rebound from the lower side of the six-month range.
Palm Oil steadied today but has clearly broken its two-year uptrend.

Fertiliser stocks like Mosaic and Nutrien continue to steady in the region of their respective 200-day MAs.

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