In the context of the ongoing cost-of-living crisis and the unprecedented levels of food inflation seen in the UK throughout the past year, consumers will be interested to note that the price of corn and other soft commodities are among the assets that have most fallen in value on the AvaTrade platform over the past week – perhaps suggesting a long-awaited correction to pricing on the food market.
This comes at a time when food inflation levels have begun to retreat from their peaks. In fact, Tesco, Britain’s biggest retailer, stated that food inflation in the country was starting to ease, observing reductions in the price of milk, bread and pasta over the past month.
According to Kate Leaman, chief market analyst at AvaTrade, the price of soft commodities is currently falling as a result of the following:
“Looking at our most falling table this week*, the top three instruments which had seen a price drop in the past week were all soft commodities. The fall in the price of both corn and wheat is on account of the extension of the UN-facilitated grain deal between Russia and Ukraine until 18th July, which has led to a rise in Ukrainian grain supply, increasing global corn and wheat exports.
“What’s more, countries around the world are beginning to feel the effects of El Niño. As the weather phenomenon is typically associated with bringing increased rainfall to regions such as the US and Canada, this has resulted in corn and wheat output in both nations actually benefitting from the heavy rains El Niño brings. As two of the largest global exporters of the commodities, this has seen prices fall.
“In terms of sugar, prices have fallen on account of an increase in sugar supply from Brazil – the largest sugar producer and exporter in the world. Per UNICA, the Brazilian sugar-cane industry association, the country’s 2023/24 sugar production rose 37.7% Year-over-Year (YoY) in May, while sugarcane crushing rose to 46.8%, compared to 40.5% in May 2022.
“It looks like traders currently holding these soft commodities are looking to sell now in order to avoid a loss when prices crash. Of course, this doesn’t mean that these price drops will immediately translate into lower prices at supermarkets or restaurants.”