Key Aspects:
- Asia’s anticipated rice yield in 2024 threatened by El Nino impact
- Moisture stress looms over wheat crops in India and Australia for the 2024 harvest
- Projections indicate a decline in Palm Oil output in Indonesia and Malaysia for the year 2024
- Argentina and Brazil emerge as agricultural supply leaders in 2024 amid global challenges
Despite increased global planting of cereals and oilseeds in response to high food prices, consumers are expected to face tighter supplies until 2024. Factors contributing to this include adverse El Nino weather conditions, export restrictions, and higher biofuel mandates. While global wheat, corn, and soybean prices have experienced strong gains in recent years, they are projected to decline in 2023 due to easing Black Sea bottlenecks and concerns about a global recession. However, the prices remain susceptible to potential supply shocks and food inflation in the coming year. Although there have been improvements in the supply of grains in 2023, challenges such as ongoing El Nino weather, reduced corn production in Brazil, and increased wheat and corn purchases by China continue to pose concerns.
“We have El Nino weather forecast until at least April-May, Brazil is almost certainly going to produce less corn, and China is surprising the market by buying larger volumes of wheat and corn from the international market.”- Ole Houe, CEO of IKON Commodities, Sydney
What is El Nino?
El Nino events represent only one facet, specifically the warm and wet phase, of the natural climatic pattern known as the El Nino-Southern Oscillation (ENSO). In the course of an El Niño occurrence, the tropical Pacific Ocean’s surface experiences elevated temperatures, particularly around the equator and adjacent to the South and Central American coastlines. The heightened ocean warmth induces low-pressure systems in the overlying atmosphere, resulting in substantial precipitation along the western coasts of the Americas.
Historically significant El Nino episodes have brought about intense rainfall, triggering events such as entire villages cascading down mountainsides. The 1972-1973 incident, characterized by soaring ocean temperatures off the Peruvian coast, almost devastated the anchoveta fishing industry—a pivotal sector for the country. The 1997-1998 El Niño caused more than $3.5 billion in damages to infrastructure, agricultural lands, and buildings in Peru. In 2016, coral bleaching occurred across the Pacific, South America endured destructive floods, and Australia grappled with wildfires exacerbated by drought.
These phenomena can extend for up to a year, with the peak warming typically occurring during the fall and winter months of the Northern Hemisphere—from October to February.
El Ninos’ Impacts on World Food Production
The continuation of the El Nino weather phenomenon, causing dry conditions in large parts of Asia, is anticipated to persist in the first half of 2024, posing a threat to the supply of rice, wheat, palm oil, and other agricultural products in key exporting and importing nations. Anticipating reduced yields, traders and officials project a decline in Asian rice production in the first half of 2024 due to dry planting conditions and diminishing reservoirs.
The impact of the El Nino weather pattern has already led to a tightening of global rice supplies this year, prompting India, the largest exporter globally, to impose restrictions on shipments. Despite declining values in other grain markets, rice prices surged to their highest in 15 years in 2023, with certain Asian export hubs experiencing a notable increase of 40-45 percent in quotations.
India’s upcoming wheat crop is also under threat due to insufficient moisture, potentially compelling the world’s second-largest wheat consumer to seek imports for the first time in six years, as domestic inventories at state warehouses have reached their lowest point in seven years.
Global Agricultural Outlook 2023/24: Challenges and Optimism
In Australia, the world’s second-largest wheat exporter, upcoming dry soils and reduced yields are anticipated in the 2023/24 crop year due to months of intense heat. This marks the end of three consecutive years of record harvests and may lead major buyers like China and Indonesia to turn to other wheat exporters in North America, Europe, and the Black Sea region. Commerzbank warns of a likely deterioration in wheat supply compared to the previous season, with exports from key producer countries expected to decrease.
On a positive note, South American corn, wheat, and soybean production is expected to improve in 2024. Despite erratic weather in Brazil, Argentina is experiencing abundant rainfall, particularly in its Pampas region, leading to favorable conditions for soybeans, corn, and wheat production. The Rosario grains exchange reports that a significant portion of early planted corn and soybeans is in excellent to very good conditions.
Brazil is anticipated to achieve near-record farm output in 2024, although recent reductions in soybean and corn production estimates are attributed to dry weather. Meanwhile, global palm oil production is expected to decline in the coming year due to dry El Nino weather, supporting higher cooking oil prices, which dropped more than 10 percent in 2023. This reduction in palm oil output aligns with expectations of increased demand for palm oil-based biodiesel and cooking oil.
CoBank, a prominent lender to the US agriculture sector, expresses a bullish outlook, foreseeing more upside price risk than downside. The tight global grain and oilseed stock inventories, coupled with the likelihood of a strong El Nino weather pattern in the northern hemisphere during the upcoming growing season—first seen since 2015—are contributing factors. Additionally, the anticipated continued decline of the dollar and a return to the long-term growth trend in global demand further support the positive price outlook for the agricultural sector.
Conclusion
Despite recent challenges to global food production, including adverse weather conditions and export restrictions, a mixed outlook emerges for 2023/24. While some regions face threats to rice and wheat supplies due to persistent El Nino conditions, others, like South America, show promise with improved corn, wheat, and soybean production. Concerns linger over potential supply shocks, emphasizing the delicate balance in the global agricultural landscape. Factors such as the return of a strong El Nino and fluctuations in currency values add complexity to the future, highlighting the need for resilience and proactive measures in the face of evolving agricultural dynamics.
