A combine harvester at work during wheat harvesting in a field in Chemlitz, Germany. (Kriztian Bocci/Bloomberg)
key takeaways:
- Crop prices surged to three-year highs as heat waves in Europe and rising Black Sea swells threatened global grain trade and food supply chains.
- Prices of wheat, soybeans and other crops rose on concerns over disrupted exports, higher energy costs and El Nino-related weather risks affecting key producing regions.
- Markets are keeping an eye on Russia-Ukraine export routes, Middle East tensions and crop conditions as traders assess whether the rally will continue.
Crop prices hit a three-year high as heat waves and escalating strikes in the Black Sea threatened to disrupt global grain trade, raising the risk of food inflation again rising, which has also been fueled by the war in Iran.
The Bloomberg Agriculture Spot Index, which tracks 10 major crop products, rose for a seventh week, hitting its highest since July 22 on July 22. Prices first peaked in May as the Iran conflict disrupted fertilizer and fuel shipments, before the risk premium eased the following month. Now, as fresh war and weather threats loom, crops are growing anew.
Energy markets have rallied as conflict escalates in the Middle East and Europe’s grain crops are being hit by extreme heat. Meanwhile, wheat prices are climbing as Russia and Ukraine step up attacks on each other’s export corridors, disrupting grain flows even as harvests are in full swing.
If the rally continues, it could send ripples through the food supply chain, sending costs up for everything from bread and cooking oil to meat and dairy. Although grain stocks remain largely adequate after bumper harvests in recent years, the return of the El Niño weather phenomenon has also heightened concerns about smaller crops, sending coffee and cocoa futures rising in July.
“Despite the Ukraine war, the market was still dependent on uninterrupted grain shipments,” Mike Verdin, senior market advisor at CRM AgriCommodities, said in an email. The latest disruption amounts to “re-opening the original wound caused by Russia’s aggression,” he said.
“The question is not just what Russia and Ukraine can actually export, but also importers’ perception of the reliability of these exports,” Verdin said. “Many importers would prefer to pay a premium for reliable supply, which would lead to food price inflation.”
Chicago wheat futures extended their rally to a two-year high on July 23, after rising more than 4% in the previous session amid escalating attacks between Russia and Ukraine on ports and ships. The two countries account for more than a quarter of global wheat exports.
Russian forces continued attacks on Odessa, causing damage to port infrastructure. Separately, the Russian oil and grain export hub of Novorossiysk has unofficially banned night-time navigation as Ukrainian drone attacks have intensified, while ships have also been barred from anchoring at Sea of Azov and Kavkaz ports in areas without organized air defense.
Additionally, renewed conflict between the US and Iran has pushed crude oil prices to their highest levels in the past few weeks, boosting demand for biofuel feedstocks such as corn and vegetable oil. Chicago soybean futures hit a two-year high on July 23, with palm oil futures in Kuala Lumpur rising as much as 2.1%. Tropical oil has recently regained the discount on gasoil, increasing its appeal in fuel production.
Brad Gulick of Eaton Mobile Power Group discusses the hydraulic systems that power trucks. He addresses dump pump sizing and more. Tune in by going above or RoadSigns.ttnews.com.
Elsewhere, scorching temperatures across Europe are raising concerns about crop damage, particularly to maize. France, the EU’s top agricultural producer, has suffered three heat waves since the end of May, with record-breaking temperatures putting pressure on key grains during a crucial stage of growth.
Overall, it’s “raising all boats” for crop prices, said Vitor Pistoia, senior grains and oilseeds analyst at Rabobank.
U.S. corn and soybean fields have also suffered from the hot, dry weather. An options trader bet $20 million on July 22 that corn would rise to $6 per bushel, more than $1 above current levels. While soybean crop conditions have improved recently, increased sales in China have also supported demand.
For Soft, the return of El Nino has also boosted prices of Arabica coffee and cocoa, leading to monthly gains for both commodities in New York. This weather event could bring unusually hot and dry conditions to West Africa, an important cocoa-growing region.
Written by Ben Westcott, Sarah Bapat and Abigail Tobias
