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Raw material prices have tumbled in recent weeks as agri-food commodities appear to have hit a downward inflection point.

According to Commodity Tracker from investment analysts at Jeffries Equity Research, the brokerage’s basket of commodities – which includes inputs like corn, palm oil, cocoa, wheat, meat and fruit as well as diesel, gasoline and PET – is now 14% cheaper than it was in mid-June. Palm oil was one of the main drivers of the decline, with prices dropping 39% since 15 June. Wheat prices were 25% lower than last month and corn was down 13%.

Some commodities, such as dairy, look less likely to climb down from their current highs. In this sector, Jeffries noted, ‘extremely high input prices remain’ exasperated by ongoing conflict in Ukraine. “Milk price increases so far this year have helped to offset some of these higher costs. However, they have not yet encouraged higher production, with yields remaining subdued,”​ the analysts observed. 

Unilever – which relies on palm oil across its food, home and personal care brands – was flagged as a ‘preferred play on the upside’. With palm oils the most deflationary, it follows that Unilever, reportedly the world’s biggest buyer, should be the biggest winner,”​ the analysts said. 

What is driving the downward pricing trend?

In palm, Indonesia is stepping up its export levels to rebalance high inventories of the edible oil built up after the country’s three-week export ban in May. The government had issued export permits for a total of 2.4m tonnes under the domestic market obligation scheme and its export acceleration programme as of 4 July, whilst cutting its palm oil export levy in a bid to boost shipments.