Grains prices in the global commodities market will likely drop further during the current quarter to June, but low inventories will act to establish a price floor, according to analysts.

This is in view of higher projections of wheat and soyabean production by global agencies such as UN’s Food and Agriculture Organisation (FAO) and the International Grains Council (IGC).

“Grains prices have declined across the board through the first quarter. Corn futures have given up 7.4 per cent in the year-to-date, rice futures 7.3 per cent, soybean futures 2.7 per cent, and wheat futures 11.9 per cent. With the exception of rice futures, which we expect to average higher through 2023 than during 2022, the prices of all major grains reached the April 4 close below their average level in 2022,” said Fitch Solutions Country Risk and Industry Research, a unit of Fitch Group.

One of the reasons for the drop in grains’ prices is the continued operation of the Black Sea Grain Initiative, which has served as the principal driver of bearish sentiment, the report said. But the impact of the initiative has now mostly been priced into grain markets. “We do note, however, the uncertainty as to the exact length of the March 2023 renewal as well as Russia’s call for further progress on a parallel deal to unblock its food and fertiliser exports to be achieved by mid-May,” it said.

FAO’s Agricultural Market Intelligence Service (AMIS) Market Monitor report said since being established in July 2022, the Black Sea Grain Initiative has been instrumental in moderating world agricultural commodity and fertiliser prices from the record highs that were reached following the outbreak of the war in Ukraine.

“The renewal of the grain deal on March 18 was thus welcome news for agricultural markets. However, much remains to be done to restore the proper functioning of markets to pre-war conditions,” it said.

The grain market report of the International Grains Council’s (IGC) said, led by an assumed recovery in maize, global grains output is projected to rise by 1 per cent in 2023-24 to 2,283 million tonnes (mt).

“While this would boost overall supply, comparatively larger consumption gains could result in smaller end-season inventories, pegged 1 per cent lower. Linked mainly to accelerating maize and sorghum deliveries into Asia, total trade is predicted to increase by 1 per cent,” it said.

Fitch Solutions said it expects prices to trade sideways in the near-term. Market arrivals of major corn, soybean, and wheat harvests later in the current quarter will see prices trend downward.

“Upside risks to our forecasts are, aside from a collapse of the Black Sea Grain Initiative, specific to individual grains markets, such as the drought conditions presently blighting the US winter wheat crop or the potential for Brazil’s late corn planting to increase the exposure of the harvest to unfavourable weather conditions…,” it said. However, the impact of lower global grain stocks will negate price pressures.

“On the downside, risks are driven by consumption, which will continue to be weighed on by tight monetary policy, persistent price inflation, as well as subdued global growth, and so remains vulnerable to negative exogenous shocks,” the research agency said.