Food prices fall as farmers help fight inflation

The headlines point to a catastrophe for the global food supply: heat waves of biblical proportions, floods, storms and wildfires. And yet the weather in the breadbaskets of the world has been good this growing season – so good that we are facing an oversupply of key agricultural commodities and thus much lower prices than in 2022 and 2023.

If the favourable weather continues for a few more months, the low agricultural prices we had from 2015 to 2020 are close to returning. In a world still not convinced that inflation has been defeated, the fall in wholesale food prices means central banks have one less thing to worry about when easing monetary policy.

I want to emphasize the word “wholesale.” The price you and I pay depends on numerous other costs – and on whether manufacturers and retailers pass on the savings or increase their profit margins.

The beautiful weather stretches from the Midwest of the United States to the plains of Kazakhstan, from the Brazilian savannah to the Australian grasslands. Even in my home country of Spain, so important for olive oil production, the growing season was about right.

The market is racing ahead of expected bumper crops. The cost of wheat, corn and soybeans has already fallen to four-year lows, about 50% below the all-time high reached in 2022 after the Russian invasion of Ukraine. Rice prices are lagging, but those costs will soon hit a one-year low. Olive oil prices, which I closely follow in my kitchen, have fallen 25% since their record high in January and are likely to fall even further.

Of course, there are exceptions: coffee prices remain astronomically high, and the cost of cocoa and some vegetables remains high by historical standards. Prices in supermarkets and restaurants are also higher than they used to be, but this has more to do with energy costs and wages than with food.

Sure, it’s hot – too hot: July was the 14th month in a row with record temperatures on Earth, according to the US National Meteorological and Oceanographic Administration (NAMA). But that doesn’t mean disaster for the breadbaskets of the world.

Weather is not the only reason the world is heading for falling food prices. There have been tremendous advances in agricultural science over the past two decades. Seeds yield far more than they used to, even when rain and temperatures are not ideal, and irrigation has been expanded. Farmers have access to much better equipment: large planters, powerful tractors, improved combines, greater storage facilities.

Compared to ten years ago, the world will harvest about 10% more wheat, about 15% more corn, almost 30% more soybeans and about 10% more rice in 2024-25. With the exception of corn, all three other major food crops will have record production.

In few regions is the combination of beautiful weather and scientific progress more evident than in the American Midwest.

On Monday, the U.S. Department of Agriculture said it expects American farmers to reap record yields for two essential food crops: an average of 183.1 bushels of corn per acre and 53.2 bushels of soybeans per acre. Those numbers may seem foreign to anyone who has never set foot on a farm. Scott Irwin, a veteran agricultural economist at the University of Illinois at Champaign, about a two-hour drive south of Chicago, summed up the statistics in a very vivid description of the overgrowth: “jungle-like.”