Food inflation will not subside in 2022 – Rabobank

The Dutch bank says a cocktail of negative factors including adverse weather, high shipping costs and limited labor availability will continue to support high prices.

Agricultural commodity prices are predicted to remain high in 2022 as multiple factors including erratic weather, inflation and labor scarcity combine to push prices upwards.

Data from Rabobank’s 2022 commodity markets outlook Hell in the Handbasket shows agricultural commodity prices have increased by around 28 percent in the last 12 months, and by 40 percent above pre-pandemic levels.

“It is highly unlikely that food prices will go back to the five- or ten-year average in 2022, as commodity prices are now supported by inflation in the general economy, including high shipping costs (astronomical for containers), energy and fertilizer prices, as well as a shortage of labor in many countries,” said the report.

“Urea prices in the US Gulf, for example, are up 272 percent year-on-year, posing questions about how much fertilizer will be used in places where farmers do not have access to finance and/or struggle financially.

“Global container prices are up 240 percent YOY (and 583 percent higher vs two years ago), posing major headaches for the transport of coffee (among other softs), while bulk shipping costs are up by 132 percent YOY, making the trade of grains and oilseeds more expensive.”

Rabobank also predicts that any significant drop in agricultural futures prices will likely be met by significant pent-up consumer hedging, which has been restricted during this period of high prices. Next year is expected to start from a position of low stocks in many agricultural commodities, which should lead to heightened volatility.

“Higher farm input costs, expensive shipping, and good demand provide for a grim combination. We should see these inflationary pressures upstream move along the supply chain to reach consumers in 2022, with uncertain social consequences,” said the report.

Wheat prices are expected to stabilize in the second half of the year after a small surplus in the global balance sheet materializes, due to an anticipated drop on demand for feed wheat.

“Chicago Board of Trade corn prices rode a 75 percent gain from April 2020 through to a May 2021 peak, before settling in a lofty $5 per bushel range (up 45 percent YOY) that could endure for the coming two years,” said the report.

Rabobank forecasts a consolidated corn price of $5.90 per bushel in 2022, as China continues to depend on global markets due to domestic production constraints.

Meanwhile, soybean prices are expected to continue at the Q3 2021 average price of $12.50 per bushel into 2022, as demand from China stabilizes and weather conditions in South America lead to average yields.