Global corn prices could surge 30%, while Hong Kong food and cooking oil prices may rise in coming months

Federation of Industries has already warned: Hong Kong food and cooking oil prices may rise in the coming months

Before discussing El Niño, it is worth noting a fact that Hong Kong readers can verify for themselves. Federation of Hong Kong Industries chairman Lam Sai-ho said publicly in April that food prices were expected to rise in the third and fourth quarters of this year, pushing up inflation in Hong Kong and globally. He acknowledged that if shipping routes could not be reopened, there might be little room for food prices in the next cycle to fall, and said he was not optimistic about the third and fourth quarters.

It is worth noting that the latest April consumer price index figures released by the Census and Statistics Department showed food prices rising just 0.7% year on year. That was actually slower than the 0.9% increase recorded in March. In other words, the “wave of price increases” cited by the Federation of Industries has yet to appear in market stalls and supermarket price tags. This is a “not yet, but possibly soon” story. Hong Kong is almost entirely reliant on imported food, and local supermarket prices have followed global edible oil price fluctuations in the past. An earlier Consumer Council comparison found that in a year when global supply chains came under pressure, the average prices of cooking oil products in Hong Kong supermarkets rose by more than 10% within a year.

That transmission chain may now face a fresh test, as a weather event of potentially historic strength is taking shape across the Pacific.

How strong could this El Niño be?

The Climate Prediction Center of the US National Oceanic and Atmospheric Administration (NOAA) has repeatedly raised its forecast for the strength of the current El Niño in recent months. In its outlook as of August this year, the centre put the probability of the event reaching the “very strong” category — defined as a peak sea-surface temperature anomaly of at least 2.0°C — at more than 90%. There is also a considerable chance that it could rank among the strongest events on record. The peak is expected between October and December this year, almost exactly overlapping the third- and fourth-quarter window highlighted by the Federation of Industries. The World Meteorological Organisation has also confirmed that El Niño conditions are developing and expects them to strengthen further.

What would an event of this strength mean for China? The direct impact would be relatively limited. The main areas of abnormal summer rainfall in China would be concentrated further north and west, while northern and northeastern China could experience relatively wetter conditions in the year following an El Niño. The regions likely to bear the brunt are South America during its planting season and Southeast Asia during its crop-growing period. Brazil is one of the world’s largest corn exporters, second only to the United States, and reduced planting of new-season corn because of flooding has not been unusual during previous El Niño years. Palm oil yields in Indonesia and Malaysia also often fall because of drought. These are the physical factors underpinning a rise in global commodity prices.

A regulatory figure misstated in the original draft

Besides weather conditions, there is also a policy channel behind rising global food prices. Several countries are pressing ahead with biofuel blending policies, diverting soybeans and palm oil that could otherwise be used for food towards industrial applications. But one common claim needs to be corrected: the European Union is not about to raise its biodiesel blending target from 7% to 14% by 2030. Verification shows that 14% is an existing target set under the EU’s Renewable Energy Directive (RED II) in 2018, covering the overall share of renewable energy in transport; it is not a new figure that is about to be raised. Meanwhile, 7% refers to something entirely different — the cap on the use of conventional crop-based biofuels. Under the latest Renewable Energy Directive, RED III, this cap is being reduced, with a target of about 3.8% by 2030. The direction is precisely the opposite of the widely circulated claim. What is actually supporting demand for oils and fats is the EU’s simultaneous expansion of advanced biofuels made from used cooking oil and residues, together with the US Environmental Protection Agency’s continuing adjustments to the Renewable Fuel Standard. These are the policy forces that are genuinely driving demand for palm and soybean oil, not the misreported “7% to 14%” change.

CBOT corn average could rise 20% to 30%, but the estimate is not a certainty

Analyses published in recent months by various mainland Chinese and international institutions suggest that market expectations for the average price in this cycle are broadly as follows: the CBOT corn average could rise by 20% to 30% from this year’s August average, while soybeans could also record a meaningful increase and Malaysian palm oil futures could move higher. If logistical disruptions caused by an escalation in geopolitical tensions are added to the equation, corn could rise by as much as 30% in an extreme scenario.

However, these specific percentages are based on multiple assumptions, including the scale of any production decline in South America, the development of geopolitical tensions and the pace at which biofuel policies are implemented. In addition, the full research reports from individual institutions were not available for a line-by-line check of every specific price target. Readers should therefore treat the estimates as directional guidance rather than precise forecasts.

Mainland China has already drawn up its “concept stock” list — but beware of chasing the rally

Hong Kong readers should note that the theme of “El Niño driving up food prices and benefiting mainland agricultural concept stocks” has been repeatedly promoted by mainland financial media and social media in recent months. Names including Beidahuang, Suken Agricultural Development, Longping High-Tech, Ganjian Rice and Jingliang Holdings have become almost standard picks in related reports. The logic is that upstream farming-resource companies are focused on farmland and rental premiums, seed-industry leaders on varietal barriers, and downstream oil and fat processors on inventory strategies.

The key point is not the list itself, but that some analysts have already issued warnings. Mainland food prices have remained broadly stable under policy support, creating a degree of disconnect from sharp swings in international food prices. After several consecutive days of speculation, the valuations of a number of related concept stocks have moved noticeably away from their fundamentals, leaving them exposed to profit-taking. In other words, even if the broad direction of higher El Niño-related international food prices is confirmed by various parties, the more important question is whether individual stocks have already run ahead of their fundamentals — not which list investors should buy from.

Three leading indicators to watch

• **USDA monthly crop condition data.** Brazil’s corn planting season enters a crucial window, usually from September to October. Month-on-month changes in crop conditions are central to market pricing, and the period around mid-October this year will be an important test of whether market expectations have become excessive.
• **The relationship between oil prices and the pace of biofuel policy implementation.** However, this article was unable to locate the latest original data that could fully verify specific figures for production growth and the share of vegetable oil consumption, so readers should treat them as directional guidance.
• **The mainland-US price gap and adjustments to customs and import policies.** When the gap between CBOT corn prices and the mainland port import price after duties narrows to a critical level, the General Administration of Customs would generally tighten the pace of import quota allocations. Monthly agricultural import statistics released by the customs authority are therefore worth monitoring.