Global 2024 staple food supplies to be strained by dry weather, export curbs

Global wheat, corn and soybean prices -after several years of strong gains - are headed for losses in2023 on easing Black Sea bottlenecks and fears of a globalrecession, although prices remain vulnerable to supply shocksand food inflation in the New Year, analysts and traders said.

"The supply picture for grains certainly improved in 2023with bigger crops in some of the key places which matter. But weare not really out of the woods yet," said Ole Houe, director ofadvisory services at agriculture brokerage IKON Commodities inSydney.

"We have El Nino weather forecast until at least April-May,Brazil is almost certainly going to produce less corn, and Chinais surprising the market by buying larger volumes of wheat andcorn form the international market."

El Nino and food production

The El Nino weather phenomenon, which brought dryness tolarge parts of Asia this year, is forecast to continue in thefirst half of 2024, putting at risk supplies of rice, wheat,palm oil and other farm products in some of the world's topagricultural exporters and importers.

Traders and officials expect Asian rice production in thefirst half of 2024 to drop as dry planting conditions andshrinking reservoirs are likely to cut yields.

World rice supplies tightened this year already after the ElNino weather phenomenon cut into production, prompting India, byfar the world's biggest exporter, to restrict shipments.

While other grains markets were losing value, rice pricesrallied to their highest in 15 years in 2023, with quotations insome Asian export hubs gaining 40%-45%.

India's next wheat crop is also being threatened by lack ofmoisture, which could force the world's second-largest wheatconsumer to seek imports for the first time in six years asdomestic inventories at state warehouses have dropped to theirlowest in seven years.

Farmers down under

Come April, farmers in Australia, the world's No. 2 wheatexporter, could be planting their crop in dry soils, aftermonths of intense heat curbed yields for this year's crop andended a three-dream run of record harvests.

This is likely to prompt buyers, including China andIndonesia, to seek larger volumes of wheat from other exportersin North America, Europe and the Black Sea region.

"The (wheat) supply situation in the current 2023/24 cropyear is likely to deteriorate compared to last season,"Commerzbank wrote in a note.

"This is because exports from important producer countriesare likely to be significantly lower."

On the bright side for grain supplies, South American corn,wheat and soybean production is expected to improve in 2024,although erratic weather in Brazil is leaving some doubt.

In Argentina, abundant rainfall over farming heartlands islikely to boost production of soybeans, corn and wheat in one ofthe world's largest grain exporting nations.

According to Argentina's Rosario grains exchange (BCR), 95%of early planted corn and 75% of soybeans are in "excellent tovery good" conditions, thanks to rains since the end of Octoberacross the country's Pampas region.

Brazil is set for near-record farm output in 2024, althoughthe country's soybean and corn production estimates have beenreduced in recent weeks due to dry weather.

Global palm oil production is also likely to fall next yeardue to dry El Nino weather, supporting cooking oil prices thatdropped more than 10% in 2023. The decline in output comes amidexpectations of higher demand for making palm oil-basedbiodiesel and cooking oil.

"We see more upside price risk than down," said CoBank, aleading lender to the U.S. agriculture sector.

"Global grain and oilseed stock inventories are tight byhistoric measures, the northern hemisphere will likely have astrong El Nino weather pattern during the growing season for thefirst time since 2015, the dollar should continue its recentdecline, and global demand should return to its long-term growthtrend."

(Reporting by Naveen Thukral; Additional reporting by Ana Manoin Sao Paulo, Sybille de La Hamaide and Gus Trompiz in Paris,Maximilian Heath in Buenos Aires and Julie Ingwersen and PJHuffstutter in Chicago; Editing by Tom Hogue)