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Agricultural rally is led by coffee, wheat and sugar

Fertilizer prices

Fertilizer prices have skyrocketed in recent months as natural gas prices have risen sharply, forcing some European manufacturing plants to stop or reduce production. Fertilizer indices, which track prices in North America and Western Europe, both trade more than 200% above their five-year average. The surge has raised concerns that farmers might reduce their fertilizer use or shift more hectares to crops that require fewer nutrients. A decline in yields could push prices higher, exacerbating already strong food inflation.

Problems / disruptions in the supply chain

Problems / disruptions in the supply chain: We all know stories of port congestion, missing containers and rising prices on all major routes in the world, especially from the production center in Asia to the major ports in Europe and the USA These problems started as a result of the pandemic that initially led to large order cancellations before the world sparked a massive consumer frenzy a few months later when the service sector came to a standstill. These developments, along with port disruptions due to ongoing Covid outbreaks, helped spark disruptions that continue to pose problems for shippers of goods, including many groceries, that are transported in special containers to this day.

Arabica coffee

Arabica coffee is trading at a nine-year high at $ 2.38 a pound, with supply prospects tightening following an annus horribilis in Brazil, where frost and drought hit the 2021 crop. In addition to the weather, the market also struggled with a lack of deliveries and high container rates, rising fertilizer prices and roasting plants in Europe that were struggling to get supplies from alternative producers in Colombia and Vietnam.

But that’s not all: The danger of civil war is also growing in Ethiopia, the world’s third largest grower of the Arabica bean. What could prove to be even worse in the months ahead is that the flowering or lack of harvest for the 2022 season suggests another year of low production.

The break above $ 2.25, the 2014 high, could signal a market headed towards $ 3, a record high last seen in 2011.

From a global food security perspective, the ongoing rally in global wheat prices is an even bigger problem. This week the Chicago wheat futures hit their highest level in nine years, while here in Europe the benchmark Paris Milling Wheat contract is trading at just under € 300 a ton, the highest price ever. Just like coffee, weather concerns are the main driver after a poor harvest in North America declined year over year along with a year-over-year decline in exports from Russia, the world’s largest shipper.

These developments have resulted in increased demand for wheat from European sources, and with the prospect of another potentially challenging crop year in 2022 caused by weather and high fertilizer costs, some of the major importers have recently increased their pace of shopping to meet the local needs to cool down food prices and secure supplies before winter. As buyers increasingly compete for supplies, the market will look for some relief from the upcoming and promising looking harvests in Argentina and Australia, which will occur from now through January.

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