Global grain and edible oil prices at highest in 2.5 years due to war and drought

The prolonged closure of the Strait of Hormuz and extreme weather have pushed the price index for agricultural commodities to a two-year high, Bloomberg reported.

The Bloomberg Agriculture Spot Index, which tracks 10 key crops, rose for the third straight month and hit its highest level since November 2023. This is a significant change from the pre-war period, when prices were held back by high inventories and record harvests.

Farmers from Asia to Australia and the United States are now facing a double whammy of war with Iran and drought, which is pushing up prices for staples from bread to pasta to edible oil.

Before the conflict, the supply of grains, particularly wheat and corn, was ample thanks to several strong harvests, while soybean and vegetable oil prices were supported by demand from biofuels, said Kang Wei Chiang, an agricultural broker at StoneX in Singapore.

“The war has changed that balance significantly, primarily through energy, fertilizer and logistics. Disruptions in the Strait of Hormuz have pushed up oil prices and, just as importantly, dramatically increased fertilizer and freight costs,” he said.

Wheat and corn, crops that rely heavily on fertilizers, have been hit the hardest. The most actively traded wheat futures contract in Chicago have risen 11% since the war began in late February and this week hit a nearly two-year high. Corn has risen 6% in the past two months to a year-long high.

Some farmers in key producing countries are having to cut back on plantings to cut costs. A prolonged drought in the Great Plains of the United States is supporting wheat prices, while challenging weather forecasts are also causing concern in other regions, including Australia and Russia. This is also affecting the corn market.

“Weather is becoming the second key risk factor,” Chiang said.

He said a possible El Niño later this year is particularly important for palm oil, soybeans and corn, where heat or disruptions to rainfall at critical times could quickly reduce supply.

Soybean oil prices in Chicago have risen nearly 50% since the start of the year to their highest since 2022, as U.S. biofuels demand increases and energy markets grow. Palm oil prices have risen 12% as Indonesia, Malaysia and Thailand increase their use of the feedstock for biofuels.

The war is fueling food inflation primarily through energy, fertilizer and logistics, and the impact is global and delayed, said Oscar Tjakra, senior analyst at Rabobank in Singapore.

“If the conflict drags on, it could add a few percentage points to food inflation over the next 6-18 months,” he noted.

Tags: corn, grain, prices, wheat, edible oils