World food markets face volatility and ongoing high prices amid a “cocktail of prevailing headwinds” in 2023, a global new report from Rabobank has predicted.
Consumers, farmers and suppliers will need to grapple with a darkening global macroeconomic picture, energy shortages and geopolitical danger, with ongoing shortages of some key commodities, according to the Outlook 2023: Tightening the Belt report. However, there is the hope of more benign weather in 2023, with La Niña set to be a less disruptive influence after three years of subjecting farmers across the Americas to very dry weather (as well as extreme rainfall and flooding in parts of Australia).
The prices of many global agri commodities are high by historic levels, yet a number of factors are depressing production levels that might otherwise increase supply. These include lost land in some key agricultural areas – notably war-torn Ukraine – high input prices on farms and increases in the cost of funding.
Among individual commodities, Rabobank expects wheat, the staple most affected by the war in Ukraine, to remain in deficit, while the coffee market should move back into surplus, with demand suppressed by a weak global economy.
Carlos Mera, Head of Agri Commodities Market Research at Rabobank, said: “Global events shaped world food markets in 2022, with wheat – arguably the most important food staple of all – profoundly affected by the war in Ukraine, while there were developments in other key commodities too. Meanwhile, with energy, labour and other costs surging, agricultural commodity prices remain sky high – at about 50% higher than in pre-pandemic times.
“Looking ahead to 2023, agricultural prices might recede. Yet that’s not because production will improve significantly but because demand is set to be weak, as consumers feel the pinch from the cost-of-living crisis and tighten their belts. A cocktail of prevailing headwinds – notably a looming global recession, elevated energy prices and simmering geopolitical tensions – means both consumers and producers alike are primed for a challenging year.”
Global economy: Winter is coming
Rabobank expects global GDP growth to drop to just 2% in 2023 with many major economies in recession. It forecasts that Eurozone output will contract by 0.9% and that the US will be in recession by the middle of 2023. A global economic downturn means farmers and producers of some commodities – such as coffee, cocoa, feedgrains and oilseeds – face declining demand expectations, leading Rabobank to hold a bearish view on some commodities.
Wheat: Food security concerns as war continues
Wheat was the agricultural commodity most acutely affected by war because of the roles of Russia and Ukraine in the global market. Uncertainty remains over the future of the grain corridor out of Ukraine, which is crucial for supplies to the rest of the world, making forecasts difficult. However, considering the current situation, an expected drop in wheat demand as the world economy weakens and uncertainty about weather in key wheat-producing countries in the EU along with the US and Argentina, Rabobank forecasts a global deficit of 6 million metric tonnes next year.
Coffee: Softening demand
Rabobank expects the global coffee market to move from a small deficit in 2022/23 to surplus in next year’s season, helped by good rainfall in Brazil and increased production in response to high prices since 2020. There is also the prospect of better weather in 2023 if La Niña disappears. The better crop in Brazil should mean consumers can access higher quality arabica beans at cheaper prices. Yet the macroeconomic outlook prompts Rabobank to forecast weak global demand growth of just 1.5% next year – well below the long-run average of 2.3% – leading to a ‘base case’ estimate of a global surplus of around 4m bags in next year’s season.
Sugar: Potentially a sweeter outlook for consumers
Brazilian cane volumes should recover in 2023, Rabobank believes, due to better weather, while, with the ethanol parity currently trading below sugar prices, it raises the prospect of Brazil adding an additional 3m-4m metric tonnes to the global market. This should keep sugar prices relatively low, Rabobank predicts.
Energy: The chill factor
All parts of the world, but particularly Europe, face high and fluctuating energy prices given the impact on markets of Russia’s invasion of Ukraine. Prices will continue to “gyrate wildly”, Rabobank predicts, and countries face the prospect next spring of replenishing their gas stocks without Russian resources to draw on.
Carlos Mera added: “As ever, the picture differs when you look across the various commodities we track, with producers of those stocks that countries and consumers can more easily cut back on – such as coffee, cocoa and cotton – the most exposed. In normal times, the cure for high prices is often high prices, with producers spurred to increase supply to meet demand. The problem is that these aren’t normal times and the range of factors making life difficult for farmers – from lost land to the high cost of production and adverse weather – have reduced their ability to aggressively expand production, and are expected to only slowly ease, if at all. It is demand that needs to adjust, and that will be painful.”
For over a decade, Rabobank’s Outlook report has evaluated the prospects for a basket of food and agricultural commodities that are crucial to the global economy based on ‘base case’, ‘high case’ and ‘low case’ scenarios.
Read the full report here (link not for publication)
For more information
Please contact the report’s author: Carlos Mera, carlos.mera@rabobank.com, +44 (20) 76649512
Further information:
Rabobank press office, pressoffice@rabobank.nl, +31 30 216 2758