By Ryan Dezember
Global food prices had already reached records when Russia invaded Ukraine in late February and jeopardized big slices of the world’s grain and oilseed supplies. Poor harvests in South America, inclement planting weather in the U.S. and rising biofuel demand threaten to stretch inventories even thinner and push prices higher.
The price of soybeans, which are fed to cows, chicken and salmon and crushed into oils, has gained 27% so far this year. Futures are trading above $17 a bushel for the first time since a hot, dry summer baked American farms and ruined crops in 2012. Until recently, that drought a decade ago was the only time that corn cost more than $8 a bushel. Corn futures, up 37% this year, settled Wednesday at $8.15, about 24 cents shy of the all-time high.
If corn and soybeans notch new highs, they will be the latest raw materials to do so in the broadest and sharpest commodities rally of the modern trading era. Vegetable oils, oats and wheat already reached records in 2022.
Corn is more than twice as expensive as before the pandemic and in most years without drought. Soybeans have nearly doubled their typical price, too.
The rise in these key ingredients is spilling over into the cost of producing foods ranging from pork chops to Pepsi, eating away at Americans’ purchasing power and adding another challenge to the postpandemic economic recovery.
Food companies say shoppers have so far kept up. But analysts say there are signs, such as stronger private-label sales, that show consumers are responding to the pinch.
“The elasticities that we’re having in the business are better than historical and better than what we had planned,” PepsiCo Inc. Chief Executive Ramon Laguarta told investors on a call this week. “However, we think the consumer is very early in this process of adjusting to the new inflationary environment.”
U.S. food prices in March were up 8.8% from a year earlier, according to the Bureau of Labor Statistics. A United Nations group said global food prices hit a new high last month, and the World Bank said it expects war in Europe to boost food prices about 23% this year, after a 31% climb in 2021 when snarled supply chains and bad weather jolted agricultural commodity markets.
The Federal Reserve responded last month with its first interest-rate increase in more than three years, lifting the benchmark rate to a range between 0.25% and 0.5% and penciling in additional hikes. Many expect the central bank to raise rates another half-percentage point next week.
The Biden administration doesn’t anticipate food shortages at home and is directing aid abroad to places that might run low, White House press secretary Jen Psaki said Tuesday.
“We’re really conducting extensive diplomacy to encourage all countries to refrain from export restrictions and excessive stockpiling,” she said. “It would exacerbate supply-chain challenges and price inflation.”
Ukraine is a major corn exporter, and there are doubts that much will be planted amid the fighting, or that bushels will make it to international markets following harvest. The U.S. Agriculture Department has lowered its projections for Ukraine’s corn exports by about 30% since Russia invaded.
Soybean gains have been driven lately by Brazil’s severe drought and record temperatures, which threaten to shrink the biggest bean grower’s crop.
Drought is a worry in North America, too, because of the La Niña weather pattern. But currently it is cold, wet weather that is delaying planting in the Midwest. Just 7% of this year’s corn was planted by the start of the week, compared with 16% a year ago, the Agriculture Department said. Soybeans are similarly behind schedule.
This year is expected to be just the third on record in which U.S. farmers plant more land with soybeans than with corn. Soaring fertilizer prices are behind the shift. Legumes fix nitrogen in the soil and don’t need the nutrient added like corn does. \
BofA Securities analysts say one way to boost food supplies would be for governments to cut rules mandating that biofuels made from crops be blended into gasoline and diesel.
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