Harvested wheat on farm field with hay bale in Saskatchewan, Canada

Soaring global food prices may be about to peak, and are set to drop sharply in the year ahead, says Fitch Ratings.

In a new report, the rating agency noted that grain prices have fallen in recent weeks, amid supply improvements and other factors. This trend points to the prospect of a “sharp drop” in annual food inflation next year.

Specifically, the resumption of grain shipments from Ukraine this week could add 20 million tonnes to global supply, and Australia is expected to have a bumper crop this year too, bolstering supply, Fitch reported.

At the same time, rising U.S. interest rates has dimmed economic growth prospects and boosted the U.S. dollar.

“Given the inverse relationship with commodities, a rise in the U.S. dollar has contributed to a large fall in agricultural commodities. The slowdown in global industrial production is also consistent with softer commodity prices ahead,” Fitch said.

The report said that signs of slowing food inflation are “consistent with a sharp fall back in annual food CPI in inflation in 2023.”

There are also upside risks to food prices, including higher natural gas prices for Europe, Fitch said. This could negatively impact fertilizer production, and ultimately, crop yields.

Of course, the weather could also impact production.

“La Niña’s return later this year could also disrupt harvests,” Fitch said.