Supply and demand balance plays a diminishing role in food inflation

Changes in food prices are becoming increasingly difficult to explain solely by the balance between production and consumption. Global food markets are being increasingly influenced by biofuel policies, weather conditions and geopolitical risks, according to S&P Global. In August 2026, the FAO Food Price Index rose 2% from July to 233 points, while the vegetable oil price index increased to 196 points, reaching a multi-year high.

Biofuels are becoming an important additional source of demand. They have already become the third major component of agricultural commodity use after food and feed consumption. Expanding ethanol production in the US and Brazil is supporting demand for corn and sugar, while biodiesel policies in Southeast Asia are increasing the use of vegetable oils. This reduces the amount of feedstock available for export and intensifies competition between the food, feed and energy sectors.

An additional risk to global agricultural production comes from El Niño. Over the next 6–12 months, the weather phenomenon could affect crops in Australia, Brazil, the US, Indonesia and Malaysia. Changes in temperatures and rainfall could affect production of wheat, corn, soybeans, beef and palm oil, with the impact varying by crop and region.

Geopolitical risks are also directly affecting food markets. Disruptions in the Black Sea region are changing grain and vegetable oil trade, while conflicts and energy risks in the Middle East could increase the costs of fuel, fertilizers and transportation. Trade restrictions are also reshaping international agricultural commodity flows.

In the soybean market, China has already contracted about 9 mln t of soybeans for the new marketing year and, over the 11 days at the time of the report, purchased nearly 1 mln t of US soybeans. Meanwhile, global beef production in 2026 is forecast at 61.6 mln t, down 1% from the previous year, while pork production is expected to rise by about 1% and poultry production by nearly 3%. This illustrates how multiple factors are simultaneously shaping the balance of global food markets.

In the coming months, weather conditions, the Black Sea situation, geopolitical risks, biofuel policies, livestock availability and trade flows will remain key factors for food markets. The combination of these factors is making food markets more dependent on government decisions, weather fluctuations and events beyond the agricultural sector itself. As a result, price changes are becoming increasingly difficult to explain solely by production and consumption dynamics.

Tags: grain, prices, soybean, meat, agricultural products, supply and demand balance