Global food inflation may soon be tamed as crops and crude oil decline

This is critical to the wheat needed to feed the world; the corn to feed pigs, chickens and cattle; and oilseeds for food processing.

“Supply may not be as impacted as we think as other areas will offset any losses from Ukraine and this is happening across the board,” said Marc Ostwald, global strategist at ADM Investor Services in London.Australia, one of the largest Wheat exporters are expected to produce another huge crop this year, while Brazil’s largest growing region has so much corn it’s piling up outside the bins.

Nervousness in North America that spring weather would severely limit acreage for grain and soybeans has eased.

The Bloomberg Agriculture Spot subindex is on course for its biggest monthly decline since 2011. Along with easing worries over dwindling grain and oilseed reserves, concerns that an economic slowdown could reduce demand also caused rising crop futures to fall from recent highs .

While such changes may take time to hit grocery shelves, chicken and beef prices are cooling off somewhat, according to Darden Restaurants Inc., owner of steakhouse chains Olive Garden and LongHorn. Fuel pump prices will also play a large role in determining the course of food inflation for the remainder of this year.

Supermarket bills are expected to “soften over the next six months, especially if energy prices fall,” said Joe Faithr, a former chief economist at the US Department of Agriculture.

On June 24, the US average daily price of a gallon of gasoline fell for 10 straight days after rising to one of the highest on record. Crude oil futures are down more than 10% from a near-historic high in the days following Russia’s attack on Ukraine, one of the world’s largest shippers of grain and vegetable oil.

Fertilizer, a top spend for farmers, has retreated after rising to record levels.

The United Nations food price index fell from a record high in March after war choked exports from Ukraine and triggered a raft of sanctions against Russia. But even if the lower growth rates continue, high food prices will likely continue to squeeze those in need.

A US government forecast released last week estimates food prices will rise by up to 8.5% across the board this year, although the report doesn’t factor in the recent fall in agricultural futures.

Additionally, Goldman Sachs Group Inc., one of the more optimistic commodities watchers, said prices have yet to be outperformed even if Bloomberg’s broad index of spot commodities is down about 13% from a record long enough a recession is falling Demand for commodities and hence prices,” analysts including Jeffrey Currie wrote in a note. “We are not there yet as economic growth and consumer demand are simply slowing, not falling completely.”

Darden Restaurants is optimistic. The Orlando, Fla.-based company says it won’t pass on higher prices for meat, dairy and wheat to customers because it doesn’t expect the increased costs to persist over the long term. Meat is “starting to drop a bit” and upcoming grain harvests should help contain wheat costs, Chief Financial Officer Rajesh Vennam told analysts last week.

Wheat and soybean futures are down about 15% this month, while corn is down 13%. Coffee, sugar and cocoa have also withdrawn. According to a report by Rabobank, high milk prices likely peaked in the second quarter and are set to ease as the year progresses.

In China, food is more of a national security issue than an inflation problem. As grain and cooking oil costs cool, consumer price growth in June is expected to be less than 2.5% yoy, said Zhaopeng Xing, a Shanghai-based senior China strategist at ANZ Bank China Co. It is still too early. however, to put an end to food inflation amid the uncertain outlook for grain shipments from Ukraine, India and other big exporters, he said.

Palm oil, the world’s most commonly used vegetable oil, has fallen about 30% from its peak as leading shipper Indonesia ramps up exports to reduce bloated inventories. The nosedive, along with a drop of soybean oil and similar commodities, could mean cheaper household items like chocolate, margarine and shampoo. But like other grain markets, any sign of a supply disruption or inclement weather could trigger another late-breaking rally.

For now, the decline in key commodities could provide a much-needed pause in inflation.

“The markets would really like to be able to breathe more stress-free again,” says Arnaldo Correa, partner at Archer Consulting in Sao Paulo. “Light a candle for your guardian angel and let’s see how things play out.”

Bloomberg.