Production shortages, surging commodity prices, trade disruptions due to the Russia-Ukraine war, and more have been the highlights of the year in the industry. In 2022, we saw a challenging demand, supply, and price movement for many of the key commodities adding more volatility to the agricultural commodities market.

New analytics from AFEX’s 2022 Wet season crop production report reveals that we will continue to see a price hike in key commodities like maize, paddy rice, and sorghum as there is a projected decline in the production level of up to 11.5 percent across these commodities. Looking ahead, despite the trade disruptions, especially with 2022 ending and 2023 rapidly approaching, these are key commodities trends we can expect in the coming year:

Commodities prices to peak in 2023

Agricultural commodity prices are forecast to hit a new historical high as they are highly susceptible to swings in production levels and economic uncertainty. While the Russia-Ukraine war is a triggering factor for the price hike of commodities such as rice, sesame, soybean, and sorghum, low productivity due to weather conditions, high cost of fertilizer, and inputs as well as larger macroeconomic global events are reasons for the increase in prices.

Currently, Nigeria’s most consumed grains are currently faced with declining food balanced sheets as consumption levels rise faster than production levels, worsening food insecurity. The long-run impacts of higher staple food prices can be cushioned through intervention on policies either on the physical or monetary side that enables the increase of supply of more grains from the Strategic Grain Reserve to stem the prices.

High fertilizer price shocks

Fertilizer prices are expected to remain at historically high levels due to the ongoing Russia-Ukraine war. This would be a severe blow to farmers across the world, especially those who can’t raise enough money to purchase the high costs, which would reduce crop yields. The elevated prices of fertilizer and energy would have a ripple effect on the availability of commodities needed in day-to-day living.

Together, Russia and Ukraine export 28% of fertilizers made from nitrogen and phosphorus, and disruptions in supply due to the sanctions and war will continue to skyrocket fertilizer prices. Hence, farmers won’t be able to purchase fertilizer at reasonable prices except if supply returns to international markets.

Pressure on logistics

We are likely to see constraints in logistics due to high transportation costs, a challenge that will be driven by the recent surge in the prices of diesel. With the global supply chain disruption amid escalating crude oil prices, farmers and consumers across the globe may have to contend with a volatile market well into 2023 as the upside risks to the prices of agricultural commodities and inputs loom. These lingering challenges continue to present a challenging environment for grain traders which will further stretch into the new year.

Bearish run on the equities market

Capital market analysts are expecting bearish trading activities in the equities market, forcing investors to consider diversification of portfolios to hedge against inflation. The outlook for the equities market is bleak because of the inflationary pressure in the economy, which means there is a possibility of CBN taking a hawkish stance to continue to battle inflation.

This induces a level of sell-off in the equities market which makes the market performance bearish. As a result, it would stimulate some level of portfolio rotation from equities into safer asset classes that would provide an edge against inflationary pressures such as the commodities market. On the back of the outlook in the commodities market, in relation to the decline in production level and forecast in price increase across key staples, early positions in the securitized asset of these commodities classes would mean an increase in the value of the investor’s portfolio.

Demand shift of oilseeds and grains from Africa

The more the war escalates, the more we are to expect rising commodity prices in 2023. The global consumption of oilseeds and grains is predicted to outpace production. There would be an increased demand from Africa driven largely by rising oilseed prices and supply disruptions from Ukraine. Hence, Africa is predicted to keep an upward trend in oilseed production levels to meet both local and international demand.

Climate change

The climate condition in the last 2-3 years has constantly been deteriorating. Every sector is feeling the impacts of climatic change and extreme weather conditions in some way. For instance, in Nigeria, we have experienced incessant rainfall which is liable to induce flood.

There is a greater chance that this will continue through the coming years. However, 2023 will see more interventions both from private and public sectors to contribute to tackling critical issues from climate challenges, especially on food production and sustainability.