Crop prices hit 3-year high as heat, war stoke supply fears

A combine harvester operating during the wheat harvest on a farm in Kemlitz, Germany. (Krisztian Bocsi/Bloomberg)

Crop prices rose to a three-year high as heat waves and escalating attacks in the Black Sea threatened to disrupt global grain trade, reviving risks to food inflation that have also been stoked by the war in Iran. 

The Bloomberg Agriculture Spot Index, which tracks 10 major crop products, reached the highest since July 2023 on July 22, advancing for a seventh week. Prices previously peaked in May as the Iran conflict disrupted fertilizer and fuel shipments, before the risk premium faded the following month. Now, crops are rising anew as fresh war and weather risks emerge. 

Energy markets have rallied as the Middle East conflict escalates and Europe’s grain harvests are being hit by blistering heat. Meanwhile, wheat prices are climbing as Russia and Ukraine intensify attacks on each other’s export corridors, disrupting grain flows just as harvests are in full swing.

If the rally persists, it could ripple through the food supply chain, lifting costs for staples from bread and cooking oil to meat and dairy. Although grain stockpiles remain largely ample after bumper harvests in recent years, the return of the El Niño weather phenomenon has also added to concerns about smaller crops, with futures for coffee and cocoa rising in July.

“The market had up to now been relying on uninterrupted grain shipments, despite the Ukraine war,” said Mike Verdin, senior markets consultant at CRM AgriCommodities in an email. The latest disruption amounts to “a reopening of the original wound caused by Russia’s invasion,” he said.

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“In question is not just what Russia and Ukraine actually can export, but importers’ perception of the reliability of these exports,” Verdin said. “Many importers would rather pay a premium for reliable supplies, enhancing food price inflation.”

Chicago wheat futures extended their rally to a two-year high on July 23, after surging more than 4% in the previous session amid mounting strikes between Russia and Ukraine on ports and ships. The two nations account for more than a quarter of global wheat exports.

Russian forces continued strikes on Odesa, damaging port infrastructure. Separately, the Russian oil and grain export hub of Novorossiysk has informally banned nighttime navigation as Ukrainian drone attacks intensify, while vessels have also been barred from anchoring at the Sea of Azov and Kavkaz ports in areas without organized air defenses. 

In addition, the renewed conflict between the U.S. and Iran has pushed crude oil prices to their highest in weeks, increasing 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 rallying as much as 2.1%. The tropical oil recently reverted to a discount to gasoil, boosting its appeal in fuel production. 

Elsewhere, scorching temperatures across Europe are adding to concerns over crop losses, particularly for corn. France, the European Union’s top agricultural producer, has endured three heat waves since late May, with record-breaking temperatures stressing the major grain during a key stage of development.

Taken together, that’s “lifting all boats” for crop prices, said Vitor Pistoia, senior grains and oilseeds analyst at Rabobank. 

U.S. corn and soybean fields have also been tested by a spell of hot, dry weather. One options trader made a $20 million bet on July 22 that corn would rally to as much as $6 a bushel, more than $1 above current levels. While soybean crop conditions recently improved, a pickup in sales to China has also supported demand.

For softs, the return of El Niño has also sent arabica coffee and cocoa prices climbing, with both commodities headed for monthly gains in New York. The weather phenomenon can bring unusually hot and dry conditions to West Africa, a vital cocoa-growing region.

Written by Ben Westcott, Sara Bapat and Abigail Tobias