The grain market is driven by uncertainties stemming from the war in Ukraine, post-COVID-19 macroeconomic developments, in particular global inflation pressures and weather developments. The fallout of the Russian invasion of Ukraine continues to impact global commodity markets and represents a major threat to global food security. In a post-COVID-19 recovery which was already facing market balance challenges and price surges, it brings additional instability and uncertainty. Global agricultural prices have risen by 30% since the beginning of the invasion, although some relaxation has been observed in recent weeks, linked partly to the coming on stream of the forthcoming harvest.

Ukrainian agriculture is directly impacted all along the supply chain, from production to trade. Several agricultural regions are confronted with heavy fighting, disrupting farming there. Russia targeted grain storage facilities with missile attacks and Ukrainian sea ports remain blocked, hence making it impossible to export the remaining grain reserves from the last harvest. With the start of the new cereal harvest in Ukraine, uncertainty remains about the capacity of Ukrainian farmers to properly store and to export their 2022 harvest. This already creates concerns for global availability and could in turn also threaten the capacity of Ukrainian farmers to ensure their 2023 harvest even on a reduced area.

The upward pressure on agricultural producer prices is not expected to ease in the short term. This is mainly due to ongoing uncertainties on how the war in Ukraine will unfold, expectations on high energy costs to continue, particularly in a view of uncertainty linked to future policy on sourcing and use of gas and oil. These are continuing upward pressures on production costs, e.g. electricity, transport, cooling and heating, as well as fertilisers and other inputs. And the increase of producer prices of agricultural commodities is expected to weigh on food consumer prices, although the price transmission will not, as usual, be perfect.

The demand recovery in China was halted by the series of COVID-19-related lockdowns imposed at the beginning of 2022 contributing to a fall in imports of many food products. This risks contributing to continued lower demand growth in the remaining part of the year. On the contrary, the current level of oil price could to some extent support demand in oil-exporting countries. In addition, some lower inflation growth is currently observed in South Eastern Asia, therefore impacting their purchasing power to a lower extent than in other regions.