AUSTRALIAN farmers are set to benefit from a surge in the global price of corn, wheat, soybean and sugar, as extreme weather knocks out key food producers across the world.
But economists warn that Australian consumers are at risk of an uptick in food prices as suppliers pass on costs of production amid competition from offshore for quality produce.
In the past six weeks, world corn and soybean prices have surged more than 50 per cent as the worst drought in 56 years to hit the US has crippled production and threatened global supplies.
Extreme hot weather in the US farmbelt - a region that accounts for a third of global corn production - has become so bad that analysts warn that the price of corn in world markets will remain near record levels for the next 12 months.
Australian producers exporting their goods will be able to charge higher prices, putting pressure on the volume and prices of goods sold into the local supply chain.
It comes as early wheat harvests in southern Russia and Ukraine report declines of up to 40 per cent compared with this time last year, following damaging winter weather in the Black Sea region.
Economists say consumers will probably see an increase in the price of food in Australia in coming months as suppliers pass on some of the rising costs of production.
"The rise in staple products such as grains is undoubtedly inflationary in terms of impacts on food prices," NAB agribusiness economist Michael Creed said. "Feed grains, for example, account for around 40 per cent of the total cost of poultry production, so there is a good chance that this will be inflationary. But it [will] take some time ... for those price rises to feed through."
It comes as the Bureau of Statistics prepares to release the June inflation figures. Economists predict a modest increase. In recent months there has been a fall in food prices.
"The last few CPI numbers surprised on the downside and, subsequently, gave the Reserve Bank board the 'room' to deliver cash rate cuts. Another downside CPI surprise cannot be ruled out, but it looks unlikely," Commonwealth Bank chief economist Michael Blythe said.
The supply shocks to the US and Black Sea regions alone mean global corn and wheat stocks are expected to fall by at least 15 per cent this year.
This week, the Chicago Board of Trade said corn prices were up 53 per cent since last month, wheat prices rose 41 per cent, while soybeans rose 27 per cent.
"The US corn crop is a category killer. It is such a massive crop that, depending on what yields do, it can set the tone for the grain market for the next 12 months," senior ANZ agricultural economist Paul Deane said.
"We've pretty much got an assured bull market in grains again for another 12 months. These prices are certainly here to stay. They're not going to disappear very quickly." Sugar prices have also soared in recent weeks after continual wet weather in Brazil.
The Brazilian sugar crop accounts for more than 50 per cent of world sugar exports. They start their crush or harvesting runs from April through to November but they've had continual wet weather delays.
The US government said this week the drought in the Midwest may continue for the rest of the season.
Frequently Asked Questions about this Article…
How are recent global corn, wheat, soybean and sugar price surges affecting Australian farmers?
The article says Australian farmers are set to benefit because extreme weather has knocked out key producers overseas, allowing Australian exporters to charge higher prices for quality produce.
Will higher global grain and sugar prices push up Australian food prices for consumers?
Economists warn consumers are at risk of an uptick in food prices as suppliers pass on higher production costs; NAB’s agribusiness economist notes staple grain rises are inflationary, though those price increases may take some time to feed through.
What weather and supply factors caused the recent jump in corn, wheat and soybean prices?
The surge is attributed to the worst US drought in 56 years and extreme heat in the US farmbelt (a region supplying about a third of global corn), big falls in early wheat harvests in southern Russia and Ukraine (up to 40% declines), and wet weather in Brazil affecting sugar.
How big have commodity price moves been recently on world markets?
According to the article and the Chicago Board of Trade, corn prices rose as much as 53% since last month, wheat 41%, soybeans 27%, and world corn and soybean prices surged more than 50% in the past six weeks.
How long are high grain prices expected to last?
Analysts quoted in the article expect corn and other grain prices to remain near record levels for around the next 12 months, describing the market as an assured bull market for about a year.
What does the fall in global grain stocks mean for investors watching agricultural markets?
The article reports global corn and wheat stocks are expected to fall by at least 15% this year due to supply shocks, which supports higher prices and could favour producers and exporters, while also contributing to broader inflationary pressure.
Why have sugar prices also soared and how important is Brazil to the sugar market?
Sugar has jumped after continual wet weather in Brazil delayed harvests; Brazil provides more than 50% of world sugar exports and weather-related crush delays are tightening global supply.
Could rising food prices affect Australia’s CPI and Reserve Bank decisions?
The article notes economists expect a modest bump in inflation around the June CPI release because rising staple prices are inflationary; previous CPI downside surprises had given the Reserve Bank room for cuts, but another downside surprise now looks unlikely according to Commonwealth Bank's chief economist.
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