Crop Prices Hit Highest Since 2023 as War and Bad Weather Bite

08sxa034sx4cpur7k[hbf}lo_media_dl_1.png Bloomberg

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(Bloomberg) — The extended closure of the Strait of Hormuz and extreme weather have jolted the price index for farm commodities to a two-year high as fertilizer headaches and the prospect of smaller harvests drive food inflation risks.

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The Bloomberg Agriculture Spot Index, which tracks 10 of the world’s top-selling crop products, has climbed for a third straight month to the highest level since November 2023. That’s a pronounced shift from before the war, when most crop prices were weighed down by abundant inventory and bumper harvests. 

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Now, farmers from Asia to Australia and the US are grappling with converging challenges posed by the Iran war and drought, pressuring the prices of staple food products from bread to pasta and cooking oil.

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The supply of grains like wheat and corn was adequate prior to the conflict after a series of strong harvests, while soybeans and vegetable oil prices were underpinned by biofuel demand, according to Kang Wei Cheang, an agricultural broker at StoneX in Singapore. 

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“The war has changed that balance materially, primarily through energy, fertilizer, and logistics channels,” he said. “Disruptions around the Strait of Hormuz have lifted crude oil prices and, just as importantly, pushed fertilizer and freight costs sharply higher.”

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Wheat and corn, both fertilizer-intensive crops, are among the hardest hit. The most actively traded wheat futures on the Chicago Board of Trade have surged 11% since the war erupted in late February, and hit the highest level in almost two years this week. Corn has climbed 6% in the past two months to the highest in a year.

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Some farmers in major producing countries have had to reduce planting to cut costs. Persistent dryness in the US Great Plains is driving up wheat prices, while severe weather outlooks are causing concern in other key regions including Australia and Russia. The spillover effect is impacting corn.

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“Weather is now emerging as a second major layer of risk,” Cheang said. Forecasts for an El Niño later this year matters most for crops such as palm oil, soybeans, and corn “where heat stress or disrupted rainfall during key growing periods can quickly tighten” supply balances, he added.

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Soybean oil prices in Chicago have surged nearly 50% this year to hit their highest since 2022, lifted by stronger US biofuel mandates and the rally in energy markets. Palm oil is up 12% as top growers Indonesia, Malaysia and Thailand move to use more of the crop in biofuel. 

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“The war is inflationary for food, mainly through energy, fertilizer, and shipping disruptions, with effects that are broad, global, and lagged,” said Oscar Tjakra, a senior analyst at Rabobank in Singapore. “If the conflict persists, it could add several percentage points to food inflation over the next six to 18 months.” Consumers will potentially see a gradual increase in food prices, especially staples, he said.

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It’s not just grains and cooking oils under threat. The Middle East conflict risks keeping fuel and freight costs elevated across commodities from coffee to cotton, as higher diesel costs push up the expense of moving crops from farms to warehouses and ports.