The biggest jump in global crop prices since 2022 threatens to boost inflation

Global agriculture prices notched their biggest quarterly jump since Russia’s 2022 invasion of Ukraine, as tensions in the key Black Sea region and extreme weather threaten more inflationary worries for central banks.

The Bloomberg Agriculture Spot Index, which tracks 10 key crops from soybeans to coffee, jumped 13% in the three months through September, the most since March 2022. While the gauge has eased from last month’s peak, it’s still up more than 20% over the past year.

Intensifying fighting between Russia and Ukraine in recent months has choked crop flows from the Black Sea, a key global supplier of grains and oilseeds, tightening supplies and prompting import-dependent buyers in Asia and Africa to seek alternatives. While top wheat shipper Russia has sought to reroute its Black Sea grain exports, so far the efforts are falling short, with only about a 10th of the volumes being sent through key alternative ports.

Extreme weather has added to concerns, disrupting wheat and corn production in key growing regions from the US to Europe. A strengthening El Niño — on track to be one of the strongest ever — continues to threaten agriculture production across regions, crimping forecasts for crops beyond grain, such as palm oil and cocoa. India just capped its weakest monsoon season in a decade, threatening harvests and raising food-price risks.

While it takes time for food-commodity costs to filter through to grocery stores, the rally risks further stoking inflation at a time of high energy prices — which add to farmers’ costs. That’s a potential headwind for central bank inflation targets. Investors see scope for as many as four Federal Reserve interest-rate hikes over the next 12 months.

Chinese Demand

Global grain prices were also supported by continued Chinese purchases of US soybeans and optimism over bilateral trade ahead of the key summit between the countries’ leaders late last month. Following the meeting, the two sides announced that Beijing would cut tariffs on US crops including wheat and corn as part of a broader deal, while keeping additional duties on American soybeans.

The combination of supply disruptions and shifting trade flows is keeping global buyers on alert, with attention focused on any Russia-Ukraine peace talk prospects and more Chinese purchases. A sustained pickup in Chinese demand will be needed, however, to keep that optimism translating into stronger grain markets.

“US soybeans are continuing to price competitively with Brazil on the export market, encouraging demand from non-China destinations, too,” said Matt Darragh, a grains and oilseeds analyst at Kpler. “A stronger-than-expected export campaign could see US soybean prices need to strengthen in order to ration demand.”

Open interest on soybean futures climbed to a record 1.12 million contracts traded in September, CME Group said in a statement Thursday. That surpassed a previous record of 1.06 million contracts in April.

“Trade talks are fueling demand, buyers are hedging the incoming US harvest amid rain delays, and Brazil’s planting season is starting just as Super El Niño threatens yields,” said John Ricci, global head of agricultural products at CME. “These events draw participants and have pushed trading activity to new highs.”

An ample outlook for US supply, after the Department of Agriculture released its latest report on Wednesday, has tempered some of the bullish sentiment. Chicago grain and oilseed prices were mixed on Thursday, with soybeans falling as much as 1.5% and touching the lowest since late August.

Last quarter, corn and wheat in Chicago both climbed 15%. Soybeans gained 13%.

“Given Black Sea issues and tightening US balances after the hot summer, longer term people will continue to look for upside in these markets,” said Richard Buttenshaw, executive director of grains and oilseed at Marex.