Food Supply Stays Tight as Disappointing U.S. Harvest Adds to Global Challenges – WSJ

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A lackluster U.S. harvest this year is setting back efforts to relieve a global food supply that has been constrained by Russia’s war in Ukraine, agriculture-industry executives said.

Senior executives from companies such as

Bayer AG


BAYRY -1.89%

,

Corteva Inc.,


CTVA -0.03%

Archer Daniels Midland Co.


ADM -0.66%

and

Bunge Ltd.


BG -1.14%

said worldwide crop supplies remain tight, and some said at least two more years of good harvests in North and South America are needed to ease the pressure. Persistent drought conditions in the U.S. and agricultural countries in South America, along with uncertainty over crop production in Ukraine, are making that harder, they said.

“When it comes to the global food-supply situation, I think things are going to continue to be tight for the time being,” said

Werner Baumann,

Bayer’s chief executive.

High temperatures this summer exacerbated drought conditions in the U.S. West and the country’s Great Plains. Intense heat in states such as Kansas, Nebraska and Oklahoma set in as corn crops were pollinating in many parts of the Grain Belt, when the plants require the most water. Some corn crops were also planted late this year after a wet spring, causing some yield loss, according to agriculture analysts.

The U.S. Agriculture Department on Sept. 12 lowered its nationwide corn-production estimate to 13.9 billion bushels, 3% lower than its August projection, and 8% below 2021’s total. Soybean-production estimates this month were down 3% from a record projection in August, and down slightly from a year earlier. Agriculture advisory firm Professional Farmers of America Inc. last month cut its outlook for corn yields by 13% in Nebraska and 22% in South Dakota, compared with last year.

The corn harvest this year is currently expected to come in below typical recent yields in North America and Europe, hindering 2022 from being a year of restocking worldwide supplies, said

Chuck Magro,

chief executive of seed and pesticide maker Corteva, at an investor presentation this week.

“The current market expectation is that global grain and oilseeds markets need two consecutive normal crop years to stabilize global supplies,” Mr. Magro said.

Futures prices for wheat at the Chicago Board of Trade are up 17% over the past 12 months, while corn prices are up about 28% and soybeans roughly 14%.

Supply constraints have helped push up futures prices for wheat.



Photo:

Arin Yoon/Bloomberg News

Years of bad weather affecting big crop-producing regions, including in South America, had stretched global crop supplies, industry executives said. This year, Russia’s invasion of Ukraine disrupted shipments from one of the world’s top grain-exporting regions.

Those factors have driven up food prices this year, especially for poorer countries. In a September report on global food security in 77 low- and middle-income countries, the USDA estimated the number of food-insecure people at 1.3 billion, up about 10% from the 2021 estimate.

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After rocketing higher following Russia’s invasion of Ukraine in late February, crop prices have eased in recent months. An agreement between Russia and Ukraine, completed in July, has enabled more than a million tons of grain trapped in Ukrainian silos to be exported via the Black Sea, and helped alleviate some of the squeezes on food. Fears of a possible global recession also have weighed on agricultural commodity markets.

Archer Daniels Midland CEO

Juan Luciano

said at a Sept. 7 investor conference that between March and August, Ukraine exported about 40% of the grain it would normally ship in that particular period. Under the Black Sea grain deal this summer, the country has shipped about 60% of what it has done in past years, he said. For September, he said it could improve further to be closer to 80% or 90%.

“It has recovered pretty quickly,” Mr. Luciano said. “Hopefully, that continues to happen because I think that it goes a long way to alleviate any pressure in the food system.”

It would likely take two or three years of good crops in the Southern and Northern hemispheres for the world crop supply to reach sufficient levels, he said.

Mexican chili peppers used in sriracha. Italian risotto rice. U.S. corn that is used widely. Extreme droughts worldwide are hitting crop yields, and that could mean higher prices for staples this winter. Photo: Carlos Barria/Reuters

The Black Sea grain-export deal has helped free up grain storage space for Ukrainian farmers, and provide them with cash for next year’s crop. Without sufficient sales, farmers could struggle to buy the seeds, fuel and other goods needed for fall planting, executives and analysts said. Companies such as Bayer have stepped in to supply them with products, including equipment to remove mines from their fields, said Bayer’s Mr. Baumann.

The export deal is under fresh pressure after Russian officials warned in recent weeks that they are unhappy with the terms, raising the threat that Moscow could leverage the arrangement in its widening economic war with the West.

An agreement between Russia and Ukraine has enabled grain in Ukrainian silos to be exported via the Black Sea.



Photo:

OLEKSANDR GIMANOV/Agence France-Presse/Getty Images

Russian President

Vladimir Putin

suggested earlier this month that Russia could pull out of the United Nations-brokered deal, saying the West had taken advantage of the grain corridor at the expense of the developing world. The threat temporarily boosted wheat prices, which had been declining in recent weeks.

Russian officials have also said that parts of the agreement that were intended to help Russia sell its fertilizer and other agricultural products amid sanctions weren’t having much effect. Agriculture executives said getting the deal renewed by its expiration in late November is crucial to easing pressure on global food stockpiles.

“Need to get those supplies out of there,” said

Greg Heckman,

CEO of St. Louis-based grain trader Bunge, which is the world’s largest oilseed processor. “Not only for global food security but for the quality and to free up storage for the next crop.”

Write to Patrick Thomas at [email protected]

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