Prices of corn, wheat, and other agricultural commodities have been soaring. Yet some agricultural stocks have not been keeping pace. That’s created a buying opportunity.
(Bloomberg) -- As skyrocketing crop prices fuel fears about soaring food costs and hunger around the globe, one of the world’s most consumed staples is bucking the trend and warding off a broader food crisis at least for now.Rice is the predominant source of nourishment each day for more than 3 billion people, and yet it hasn’t rallied anything like other agricultural commodities from corn to soy and meat. While prices are above levels a year earlier, they’ve declined in recent months in some of the top exporters including Vietnam, Thailand and India on improved supplies from new harvests.One reason for the diverging trend is that rice is grown mainly for human consumption, whereas the surge in crop prices has been driven by booming demand for livestock feed. China’s insatiable appetite for hog feed has combined with poor crop weather to drain world grain and oilseed supplies, sending corn and soybeans to the highest level in more than eight years.Wheat -- mostly used to make food including bread, pasta, noodles, cereal bars and biscuits -- has risen too as it’s increasingly fed to animals as a substitute for expensive corn and soy. Prices have jumped more than 40% since August, compared with about 120% for corn and over 70% for soy. While rice futures in Chicago climbed 22%, the Asian benchmark for Thai white rice gained just 4%.Stable rice prices could stop food inflation from becoming a more widespread problem. Global food prices are already at their highest since 2014, triggering warnings from the World Bank and United Nations about rising food insecurity and stirring memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations across Africa, Asia and the Middle East, and contributed to political strife and uprisings in the Arab Spring.Global Hunger Hits Highest in Years as Pandemic Hurts IncomeThis time, the impact of soaring crop prices on grocery shelves can already be seen in higher tortilla prices in Mexico and beef in Brazil. In the U.S., it’s more expensive bacon and other meat cuts due to higher feed costs. Asia is generally more insulated as wheat is usually less of a diet staple than rice.“The fact that rice prices are stable is pretty good news for global food security,” said David Dawe, a Bangkok-based senior economist at the UN Food and Agriculture Organization. “You’ve got a lot more poor people in Asia, where rice is a staple food.”There’s little risk for now that rice will get caught up in the rally. Unlike corn, soy and even wheat which face tightening supplies because of dry weather in important growing regions, including in the U.S. and Brazil, there’s no global shortage of rice. The weather pattern known as La Nina that contributed to drought in the Americas has instead brought rains to much of Asia, where over 90% of the world’s rice is produced and consumed.India, the world’s biggest supplier, has harvested record amounts of rice for the past few years and has been shipping them at low prices. “Even if sales from Vietnam and Thailand dropped, rice prices won’t be going up much because there’s plenty of supply from India,” said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association.Production from Thailand, which was the No. 2 exporter before slipping in the ranking last year as a drought slashed output, will probably benefit from higher rainfall this year, according to Chookiat. Rice prices could climb should there be “surprise demand,” but gains will be capped by large stockpiles in China as well as India’s ability to keep on exporting, he said.In China, the government has built up massive inventories of wheat and rice that could feed its entire population of 1.4 billion people for a year. It’s even urged animal feed mills to buy both the grains from state reserves to replace corn and soybean meal to curb the country’s dependence on foreign supplies.However, food security isn’t just about staple food crops and consuming sufficient calories. For the poor, it’s about having access to adequate amounts of protein, micronutrients and vitamins. This has been made difficult because of the spikes in corn and soy, which pushed up meat prices.The World Will Pay More for Meat as Food Inflation Deepens“The higher maize prices will put price pressure on pork and poultry and that will make it more difficult for poor families to afford that in their diet,” Dawe said. “They’ll be OK on the rice but they won’t be so good on the meat, and that can have an impact on the nutrition of young children.”(Updates prices in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Crop prices are already at the highest levels in more than eight years, and with meat and fuel markets running hot, the rally may still have further to go.Meat producers and biofuel makers have so far seen a bull market of their own, passing on the increase in grain costs as the world emerges from the pandemic. Executives from Archer-Daniels-Midland Co. and Bunge Ltd., two of the world’s top agricultural commodities traders, say there are very few signs the rally is curbing demand. And the U.S. is approaching summer -- peak time for grilling and driving -- which should only boost consumption further.Everything from corn to soybean oil has surged as top commodities buyer China scoops up U.S. supplies just as dry weather in Brazil fuels concerns about the size of crops in the South American agriculture powerhouse. Demand for cooking oils to make green diesel has also been on the rise, sending a gauge of crop prices to the highest since 2012 and exacerbating global food-price inflation.“What we’ve got going on is a fairly rare circumstance where pretty much everything in the supply chain is profitable,” said Dan Kowalski, vice president of research at CoBank. “So there hasn’t been any reason from a fundamental perspective, at least domestically, for demand to drop off.”The poultry, cattle and pork industries are all profitable, with hog prices hitting the highest prices in almost seven years. Beef packers are cashing in fat profits, with margins near the record levels reached during the pandemic. Even the beleaguered ethanol market is seeing the highest prices in six years as the car makes a comeback as the preferred transport in the post-covid era.“In terms of destruction of demand, we haven’t seen that to any degree,” Juan Luciano, ADM’s chief executive officer, said in an earnings call last week. “The only thing you can say: things have become expensive.”Greg Heckman, who leads rival trader Bunge, also says he is seeing very little sign of demand destruction as “animal profitability continues to be good.” Brazil is one of the few places to see setbacks as the government ordered a reduction in the blending mandates for biodiesel, reducing demand for soy oil.Brazil Demand“Brazil is having a very difficult time with Covid, so I think that the overall economy is suffering,” Luciano said. “The government is trying to alleviate some, to alleviate a little bit the pressure on inflation there. But that’s probably the only example I can pinpoint at this point.”Demand for animal feed in Brazil is unlikely to grow the 4% previously expected as producers of eggs, milk, chicken and hogs have cut down use due to higher costs, according to Ariovaldo Zani, president of animal feed-industry group Sindiracoes.“We’ve noticed feed demand falling from a year ago probably because animal production has been also reduced,” Zani said. “We may see this rate going down to 2% or 3%.”India is another place where demand destruction is taking place due to a coronavirus resurgence, Heckman said. Low profits from crushing soybeans in China have also hurt demand for soybean meal, but that has been replaced with wheat, a normal substitution when prices rise.The first signs of any decline in global demand will likely come from the export markets, when China starts slowing crop purchases, CoBank’s Kowalski said. The Asian nation has already bought a record amount of American corn and soybeans, with traders speculating that some of it will be for state reserves.But most traders don’t have a good visibility on China’s moves and can only react to orders. There’s also a political element, with the world’s largest commodity importer facing the need to boost U.S. purchases to meet goals in the phase-one trade deal, a target it failed to achieve in 2020.“If they are going to be very serious about that, if there are conversations with the Biden administration about hitting those numbers, then they will continue to buy corn and soy as necessary,” Kowalski said. “China is always the wild card and there isn’t a good sense of when the buying starts to slow down.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.